Getting finance for your business

Michelle asks: I want to start my own small business hiring catering equipment and crockery and cutlery. I am certain that I can get bank finance, but not sure how I approach the bank.

Do I need a business plan or something in writing to show them what I want to do with the money? Must my business first be registered before seeking finance?

Maya replies: It is probably best to apply for a small business loan so that right from the start you separate your personal finances from the business’s finances.
There are also advantages of setting it up in a company structure, both from a tax point of view and to protect your personal finances from a business failure (see related articles).

There is a fund called Khula Finance that the Enterprise Development Department established to facilitate access to finance and business support for SMEs who lack collateral to secure a loan. These are offered through all the banks.

According to FNB Commercial, there are various criteria required in order to assess the application.

The key criteria include:

  • A detailed business plan.

  • Equity or own contribution (generally between 10% and 30% of the loan amount).

  • Letters of intent from your debtors/potential cliental.

  • Satisfactory credit records and, in some instances, must be able to offer some form of tangible collateral e.g. a covering bond over residential or business property.
Ashley Mathura, head of start-ups at FNB, says when approaching the bank for finance it is essential that you have a business plan that answers in-depth questions about your business, such as: barriers to entry into the industry; or, should a supplier not work out, at what price and quantity could an alternative supplier offer the material in question?

Your business plan should also demonstrate your passion and interest in the business as well as your financial and business acumen.

“You can’t hide behind an expensive, consultant-written business plan. If you don’t know how the finance side of your business works, you won’t get a bank loan,” says Mathura, who advises that the barriers to entry in the catering industry are fairly low, so your business plan should clearly state your uniqueness and competitive edge to compete in a saturated industry.

Competitive edge could come from your experience, networks in the industry, innovation, or your people.

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