This is what your small business investor wants to hear

What does your small business investor want to hear from you as the owner? Small businesses play a significant role in the economy and funding is a critical part of ensuring that these businesses are sustainable.

Nobesuthu Ndlovu, director of SME for Old Mutual Corporate’s SME unit, says there are five golden rules when a small or medium business applies for funding. Never hide anything, manage funds effectively, know how much funding you need, be familiar with the steps for funding and ensure you have a clear strategy to show an investor.

“We have supported SMEs for a very long time and we have geared our SME offering towards actual challenges identified by business owners. Investors are specific about what they look for when investing.”

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Be upfront when applying for funding

Ndlovu says be careful not to hide anything.

“It is always best to be upfront with a funder on the financial performance and position of the business, even when there may be some adverse information such as a judgement. There are funders who truly are partners to SMEs and can find a workaround for certain challenges, such as a remedy or even pre-investment support.”

Manage your funds effectively

Although this may sound counter-intuitive, Nldovu says business owners should be careful not to expand their business too quickly.

“While accessing funding can be a challenge, once it is approved and disbursed, managing that funding in the business also requires focus from the business owner and finance managers. More cash in the business means more controls are required over activities to ensure that it is used appropriately.”

When steps to increase business income are not successful, her advice is to reduce your loan amount or operating expenses, as misuse of funds often becomes the root cause of many businesses failing to repay their debt on time and gradually falling into a debt trap.

“You can effectively manage budgets to track expenses and look for the best interest rates when consolidating debt.”

Know how much funding you need

“There are risks to applying for too little or too much funding. The risk of applying for too little funding is that the potential growth and access to cash flow for operations may be constrained, particularly where there is a purchase order or contract.”

Ndlovu says we all know the perils of taking on too much debt and therefore, the repayments required by the investor need to be considered over a longer period, especially now with the worsening macro-economic environment.

Funding ranges differ for funders, such as Old Mutual SMEgo, a digital, one-stop solution that helps SMEs run and grow their business with funding between R10,000 and R20 million.

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Be familiar with the steps to apply for funding

Before you apply for funding, make sure your admin is in order, Ndlovu says. While different funders have different requirements, most will expect your company to be registered and your documentation should be in order.

To apply for funding from SMEgo, requirements include:

• Businesses should have a minimum annual turnover of R1 million+
• Time in business must be more than 12 months
• The business must be trading for more than 6 months
• Business registration, bank and financial statements must be submitted.

SMEs must have a clear strategy 

If you want to apply for funding as a small business, you have to demonstrate that you have a clear strategy that proves you have access to markets for your products and services, as well as the technical ability to deliver, which must be clearly articulated.

As an entrepreneur you must show your ability to manage personal and business finance.

“Directors should have business acumen and be able to respond to changes in the market. Most importantly, the compliance-related issues in your industry, such as tax, and environmental impact assessment (EIA) should all be in order.”

Ndlovu says many funding opportunities are available and the key to any kind of business funding is having a solid business model and strategy to prove why the funding is necessary.

“When you understand why a business may need funding and how to get there, you can access the right capital to help get you off the ground and ultimately grow your business more efficiently”.