FinFind recently released its inaugural “Access to Finance” report for South African entrepreneurs and it provides some important insights into the state of small business lending in South Africa.

While there is quite a lot of focus on the types of funding available to entrepreneurs – or lack thereof in some cases – I believe the slide below is arguably the most important starting point for entrepreneurs.

What that slide shows is the documentation required to apply for funding.

These are some of the key takeaways:

1. You WILL require collateral:Starting from the bottom, 30% will require either surety or collateral before they look at your funding application. There are very few examples of institutions who are going to offer risk free capital, particularly if you are running an early stage business. For context, look at this story from Business Partners which points out that despite the founder being financially independent and representing an international license in South Africa, the pre-revenue business had to give up 35% of its shareholding.
2. Credit checks:We’ve previously pointed out (https://www.decusatio.co.za/our-views/the-importance-of-personal-credit-scores-for-entrepreneurs/) that if you are going to apply for funding, you need to get your personal credit profile in check.
3. Structure:If you continue up the list, you will clearly see the need for some kind of trading history and forecasts on your earnings. A business plan is nice to have but regular cash flow in and out of your bank account plus some level of audited financial statements will give you increased credibility with a lender. If you turn this around, try and get any kind of credit facility from your bank when you open a new business account: You will told that you need to trade for a year before they will look at granting credit. In contrast try and apply for the same credit in your personal capacity – it’s much easier for the bank because they can interrogate your bank account statement and match it up to a credit score.

Getting your financial function right:

Too often entrepreneurs stumble when it comes to fundraising because they don’t have a financial function in place. The common argument is that financial or legal skills are “too expensive”.

We receive a number of applications for finance from entrepreneurs who are looking to raise capital but when we ask for key supporting documentation, the regular answer is that they don’t have this documentation on hand.

If the argument is that you need to raise R1m to pay R10 000 for finance or legal skills, then you are perhaps approaching the problem wrong. There has been a significant increase in the number of “Part-Time” or “On-Demand” Financial Director (FD) offerings which can be of huge benefit to entrepreneurs who don’t have specialist finance skills on their team and instead of opting to “go-it-alone”, entrepreneurs should look to build a supporting team to get them access to finance.