How to secure finance and turn your dream into a reality

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By Marnus Broodryk, Shark Tank SA Investor and Xero Gold Partner

We live in a world of thwarted brilliance. For every Steve Jobs-level visionary, there are a thousand individuals with equal talent and ability who simply never got a shot.

Ideas are important, but you also need the resources to bring them to life. Without significant reserves of startup capital (that not many entrepreneurs have the luxury of) the only options are to start extremely lean or go looking for funding.

To state the obvious, this is never easy. Xero’s 2017 State of Small Business Research suggests that 48% of entrepreneurs would like to see more government funding options, and 36% would like the government to open up access to finance.

While the government ought to do its part, it’s a sad truth that it often takes a while for the country’s leadership to get things done. Would-be entrepreneurs can’t afford to wait. Avoiding taking out a loan can be achievable, and often advisable, but a lot of the time it’s unavoidable.

If you decide to take out a loan, there are different options to consider. Here’s my advice on what you need to know to make sure you pick the best option for your business’ needs.

Don’t bank on financial institutions

Traditional banks are usually the entrepreneur’s first port of call, which on the face of it, makes sense. They have the reputation, the name recognition, and – most importantly – the money to help.

The problem, of course, is that they often don’t. Banks simply won’t give money to small businesses if they can help it. When they do, it’s usually when those businesses can really prove just how the stability of their credentials is, which isn’t always easily achievable. Any claim that states otherwise is just misleading marketing. More often than not, they’ll hound you for information and reject your application due to some unspecified technicality. Your ideas don’t matter as much as your perceived risk.

Fortunately, there are alternatives to help you secure that all-important loan to get you on your feet.

Purchase order finance

Purchase order finance is one such alternative. Large companies will often advance money upon placement and receipt of customer orders. Knowing that the orders are in good standing, they’ll typically carry the risk of any loan made while you await payment. Just make sure that you pay as soon as the client pays you. There are various companies offering this type of funding for SMEs, including Lulalend and Retail Capital.

Invoice financing

It’s also worth thinking about invoice finance. It works in a similar way to purchase order finance, but with some differences.

Institutions such as Transaction Capital Business Solutions will often offer the option to finance against invoices: they’ll pay you immediately in exchange for a small percentage of the invoice amount. This allows you to operate without the burden of late payments or the effort involved in collecting them.

Good ideas deserve to become great businesses – and a great business should always get the backing it deserves. Don’t settle for nothing, and don’t settle for bank loans. There are always better options.

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