How to get funded to grow a business

By Vernon Pillay Time of article published Jan 13, 2022

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It’s the beginning of a new year, and many companies will have set fresh goals for their businesses. After two years of a very difficult economy due to the pandemic, companies are hopeful that this year will be better.

Whether they’re looking to recover from business lost during the last two years, or looking to expand their existing business, growth will be top of mind.

No doubt many will need funding and will turn to the banks to secure a loan. But many will fall short on some of the banks mandatory requirements and get turned away. Perhaps they don’t have three-years of financials or an adequate trading history. An established business can manage these requirements quite easily, but a younger business might not, yet it could still have very promising fundamentals.

“While banks are unlikely to approve a loan without ticking all the required boxes, there are alternative funding solutions available,” says Vijay Jainundh, Head of Paragon Debt Advisory, a subsidiary of Paragon Lending Solutions. Paragon prides itself on having a network of over 120 funders that includes asset managers, development financing institutions, life companies and non-bank lenders, among others, who are on the look-out for interesting opportunities, particularly where local businesses are doing good or giving back. Furthermore, with the limited number of listed companies available on the JSE, private equity has become an increasingly popular investment.

“There are far more funders in the market than most businesses are aware of. Many of them are willing to look at unusual deals and respond positively to creative loan structures and proposals. However, most businesses don’t know how to access these funders, don’t know who they are, don’t have the necessary relationships, and don’t know how to structure their proposals.

“It’s important for businesses to present themselves and their companies to funders in the right way, one that is tailored to each funder’s requirements.”

ESG counts

It’s entirely possible to package a funding deal that in addition to looking at the numbers, considers the positive impact a company is having on important social and environmental issues. This could include job creation, social upliftment programmes, and environmental factors. The business would still have to look promising on paper, but strong ESG credentials can help position them as a more suitable funding candidate. “Lenders look for businesses with a sound commitment to improving environmental and social aspects of running their operation and contributing to society at large,” says Jainundh.

In addition to job creation, other examples include empowerment efforts such improving the infrastructure for a nearby community, or investing in renewable energy projects, housing developments and financial inclusion or education outreach. One interesting example is a company that got funding to transform buses into mobile clinics or government service stations where licences could be renewed – and the list goes on.

“While the call for greater awareness and action towards ESG is louder than ever, it does have benefits beyond its intended purpose. The outcome of various ESG initiatives not only sets out to improve the environment and livelihoods of those who are involved, but it enables a participating business to progress.”

What a business generates is a big focus point for lenders. The numbers need to stand up but having these ESG factors as part of the deal, makes it more appetising for funders to commit. A business’ fundamentals and ‘E’ and ‘S’ – or quantifiable impact – can be the ticket to enhancing the funding opportunities available.

Getting debt-ready

Some businesses, especially those who are smaller can fall behind on some of the basics that would be required to apply for funding. Paragon offers pre-screening work to get a company debt ready. It can be a process to align all the steps needed in a funding application or to consolidate existing funding lines. In the end, it can mean a better funding deal outcome by being as prepared as possible.

“Smaller businesses need not feel ill-equipped to apply for help to grow. The tough economy can mean financial support is needed to capitalise on growth opportunities. Growing businesses lead to increased job creation and the positive knock-on effect improves the outcome for so many, over time. The incentive to bolster ESG efforts on top of this, to increase funding potential is an added bonus that boosts the entrepreneurial marketplace overall,” Jainundh concludes.

BUSINESS REPORT

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