A report from the World Bank suggests that entrepreneurship can solve the job crisis in South Africa but many entrepreneurs battle for funding.
Below is a look at the different funding options that entrepreneurs can use to fund their small business.
1. Government funding
The South African government will offer funding to entrepreneurs for their business if the enterprise can impact the economy.
Government offers 5 types of grants:
- Grants -
- Cost-sharing grants -
- Incentives
- Tax incentives
- Equity funding
An entrepreneur will need to meet the following criteria to be eligible for government funding: a registered company, B-BBEE certification, tax clearance, company profile and a business plan
2. Bootstrapping
The business funds itself. Bootstrapping, also known as financial bootstrapping, is when an entrepreneur starts a company with little capital, relying on their own funds rather than outside investments to build the business. As the business grows, they use the profits for further growth.
3. Crowdfunding
Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture.
In the past two years, crowdfunding has grown in popularity, largely because of the Covid-19 pandemic in 2020.
In South Africa, there are a variety of crowdfunding platforms that entrepreneurs can look to get funding for their businesses, including Uprise Africa and Thundafund.
In 2018, Uprise Africa announced the company’s first equity crowdfunding investment closed after raising a total of R 3 889 000 in just 60 days for Drifter Brewing Company.
The three primary types of crowdfunding are:
- Debt-based crowdfunding
- Equity-based crowdfunding
- Rewards-based crowdfunding
4. Venture Capital
An entrepreneur who is just starting business can go down the venture capital route when seeking funding.
Venture capital is offered to early-stage enterprises for companies that show potential for growth. However, in exchange for funding, the venture capital firm may require certain decision-making powers or an ownership stake in the business.
According to a report in Business Report, the South African venture capital market continued to grow during the Covid-19 pandemic, with 74 Fund managers investing R1.39 billion into122 entities through 167 investment rounds in 2020.
5. Angel investor
An angel investor is a high net-worth individual (HNWI) who offers an entrepreneur’s start-up funding in exchange for a piece of the business. Angel investors are more likely to invest in firms that are recommended by trusted individuals. Therefore, it is important that an entrepreneur network’s in the business community to get a referral.
6. Traditional financing
Entrepreneurs can look to the traditional and more common ways of getting funding for a business: a business loan from a bank.
In South Africa, entrepreneurs can apply online to qualify for a business loan, and one of the requirements for the business loan can include that the business has been successfully trading for 12 months.
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