When it comes to your biggest fears; heights, public speaking or even spiders might come to mind. But for an SME owner, there could be quite a few things that keep you up at night. In a poll we recently ran on Twitter you told us that your number one fear when it comes to running a business is not having enough cash flow. But high up there as a top concern for small businesses looking for funding, is the fear of rejection.
They say the only way to really overcome your fears is to face them, and so we chatted to our Chief Risk Officer Garth Rossiter about how SMEs can better understand the funding application assessment process and set themselves up for the best shot at an approval.
What does it mean to be a responsible lender?
To me, responsible lending is simple. It means that our client comes first. It is making sure we all act in our client’s best interests, that we ensure affordability, that we have clear and understandable terms and conditions and ultimately that we support our clients if they experience repayment difficulties. Our business success is driven by our clients succeeding, not failing.
What does a business credit assessment entail?
Well, being a fintech business, our application process is online and our assessment and outcomes are largely data-driven. At the same time we have a phenomenal credit team analyzing outcomes to ensure, first, that our clients get the best offer possible and, second,that the system keeps learning and making better decisions every time. The two main factors we consider are the credit scoring of the business (to assess risk) and then the affordability (which is effectively what we forecast to determine the amount of funding that would be appropriate for any given business). We have a large number of data points which help us to determine the right level of funding and the right score for the business.
What are some of the common reasons for a business not qualifying for funding?
Probably not enough affordability and previous issues with repaying debt (which haven’t been resolved). In both of these cases, we feel it would be irresponsible to provide funding as our assessment suggests that the business would not be able to afford the advance comfortably, or that the business has struggled to meet its obligations in the past.
Why would a business not get approved for the full amount they’ve requested?
Again, we only want to give clients advances where our calculations show this will not negatively impact the business. In some instances, this will be less than the client has requested but, for us, we feel it would damage these businesses if we were to increase debt beyond a certain level. So again, it’s about helping business, not hurting them.
If you aren’t approved, can you re-apply at a later stage?
Of course! Wherever possible, we always want to help small businesses grow. If a business is not approved, we let the owner know the reasons for this which empowers them to make changes and come back in future when circumstances have changed.
What is some advice you would offer businesses who are applying for funding for the first time?
Obviously it’s worth ensuring you meet our minimum criteria (turnover of over R40 000 per month, trading for a year and being able to provide us with 3 months bank statements) but at a business level, I think it’s really important for business owners to understand what their business fundamentally does, their business plan and importantly their working capital cycle so they know when they are likely to need that extra liquidity. Where possible have funding arranged early on to meet these requirements, rather than panic and start missing payments which negatively impacts your credit score and makes access to funding in future more difficult.
Unpaid invoices have been a hot topic in the news recently. For most small businesses and SMEs in South Africa, late payments are an ongoing challenge. Often smaller contractors are the last in line to get paid. (more…)
According to SME South Africa, 47% of South African small business owners are women. That’s a 6% increase in the female to male entrepreneur ratio. We know that SMEs are a major driver of job creation, so on paper, the future certainly looks bright.
That’s until you factor in that 70% of new businesses fail within the first 18 months. It’s clear that access to funding for women’s business remains a big challenge.
According to one survey, 88% of small businesses are self-funded, have never applied for funding and don’t actually know where to apply for funding. Plus, most claim access to finance is their number one challenge.
So what can be done to support female business owners in South Africa? The answer seems remarkably simple. Funding. More specifically, it’s access to the right information that empowers female business owners to make informed financial decisions.
We’ve put together this handy guide to help you understand how funding can be used to help your business grow.
Challenges Affecting Female SMEs
There is nothing more satisfying than running your own business. But being your own boss does come with its own challenges.
The main business challenges faced by SMEs are:
Access to finance and credit
Cash flow management
Access to support
High startup failure rate
Access to markets
Business funding exists to help deal with some of these challenges. As an entrepreneur and business owner, you need to understand the unique challenges that face your business and determine what kind of business funding can help you overcome them.
Clearing The Fog Around Business Finance
Financial literacy and easy access to information about business funding is key to solving many of the challenges facing your business. You need to know how to plan, budget, invest and have a working understanding of the financial health of your business.
It’s also important to know that applying for business finance is not an indication that your business is struggling. Most, if not all, businesses that have been operating for some time need capital in order to scale.
Funding For Women’s Business In South Africa
In the past, SMEs had to rely on banks to provide a range of financial services, but because of restrictions and tough requirements, actually walking away with the funding needed was difficult. Now there is a range of alternative lending options for SMEs, each with their own pros and cons.
Some forms of finance like bootstrapping, angel investors, venture capitalists, crowdfunding and accelerator programs are only applicable to new businesses and startups.
For existing businesses, funding options include secured and unsecured loans, bank finance and government grants. Funding intended for a specific purpose, such as a bridging loan or purchasing equipment, carry their own minimum requirements.
Alternative lenders have proven a popular and more flexible option for South African SMEs looking for easy access to finance.
Business credit can be a great tool for growing your business and it’s a lot more flexible than a small business loan.
A business credit facility works in the same way as a credit card, which can be a huge advantage for SMEs. It’s always there when you need it, which is great for peace of mind, and means you don’t have to withdraw from your personal funds when you need quick access to working capital.
And the biggest advantage – you only need to apply once.
Using Your Funding
There is a common misconception that only new businesses require funding. The reality is that business funding can be applied for at any stage in a business’s lifespan and can be used to meet many different needs.
Examples of ways you can use your business funding include:
Expansion of your premises
Hiring additional staff
Managing Cash Flow
What you do with your business funding is ultimately up to you. As a business owner, it’s your job to ensure you know exactly what you need funding for and how to use it to achieve your business objectives, whether it’s growth, purchasing seasonal inventory or buying the equipment needed to scale.
As a business owner, you need to understand how your money can work for you. This includes your business debt.
It’s important to understand that there is a difference between good debt and bad debt.
Bad debt does not influence your business growth. In fact, it does the opposite. Drawing on your credit card to cover day-to-day-expenses, luxury items or depreciating assets like a vehicle, counts as bad debt.
Good debt works for your business. Business funding that contributes to the growth of your business or ultimately increases your net worth can be considered good debt.
The Secret To Growing A Successful Business
Accessing finance to grow your business is a big step in the right direction, capitalising on that investment is another smart move. But running a successful business is so much more than maintaining liquidity. It’s about why you decided to do it in the first place.
Research shows that 74% of entrepreneurs start their own businesses because they want to pursue their passion and make a positive impact in South Africa.
We’ve handpicked some inside secrets from successful female SMEs to help you along the path to success:
Tell your brand story in your marketing – it will make customers (and investors) love what you do
Define your values and let them drive your business activities
Connect and engage with your customers and they will return for more
Get tech-savvy and embrace technology
Be a disruptor and show the world what makes you different
Network as much as possible and share your success story
Never sell yourself short – be proud of what you have achieved
Pay it forward and mentor other women business owners like yourself
Grow Your Business With Lulalend
Lulalend is dedicated to helping South African businesses grow and that includes providing access to funding for women’s business.
According to our own market research, 59% of SMEs say access to credit is their biggest business challenge. With Lulalend, you can access up to R1 million in business funding or business credit in as little as 24 hours. Simply apply online and complete our paperless, obligation-free application and we’ll be in touch with your answer.
If you have any questions, get in touch with us today and we’ll help you find the business funding solution that’s the right fit for your business.