Article by listed accountant TYRONNE NEL
In this month’s blog we will look at accessing finance……. is it as difficult as our experience indicates?
Well the short answer to this question is YES, it is very difficult for entrepreneurs to access most types of finance, however, we think it is important that we look at the different types of finance as some are easier to access than others.
See Also: Cashflow; Debtors; Creditors
This is the most sought out and often the most difficult finance to raise. Our experience has shown that unless your business is a “sure thing” or you have sufficient unencumbered assets to more than cover the loan you require, there will be no chance of raising Start up finance. The simple reason for this is nobody is willing to risk their hard earned cash on a business that has no trading history.
Experience has shown that the majority of Entrepreneurs have used funds from family, friends, access bonds and credit cards to fund their business start ups
Like Start Up finance, Asset finance is easier to raise if your business is trading successfully or you have sufficient unencumbered assets to cover the price of the new asset. Once again our experience has shown that most entrepreneurs will finance the assets they require before leaving their “secure job” to open up their new business.
Credit cards are a form of unsecured lending and access to them is often only granted once your business has been trading for six months or more. The downside to business credit cards is that the outstanding balance has to be repaid by the 15th or 18th of the following month.
Therefore at best they only provide a short term cash flow solution and if not managed correctly can get you into trouble.
A business overdraft is often the easiest form of funding to secure. It is generally unsecured funding (not requiring assets to secure it) and the size of the loan is based on the amount of income flowing through your business bank account. Some banks are even offering start up businesses overdrafts when they open their accounts.
Invoice discounting (factoring, debtor financing, etc.), while not that well know, has been around for a very long time and there are many specialist funders available who offer this service. While there are subtle differences in the various products on offer, invoice discounting is simply an advance on your debtor’s invoices.
In a few instances, where start up businesses have landed a large order or tender, Invoice Discounting has been used as start up capital to get the business off the ground.
All the above funding mechanisms are available in various hybrid formats and we recommend that aspiring entrepreneurs talk to a knowledgeable advisor before committing themselves to a regime that might not be suitable.