123 Running a business in South Africa can often feel like walking a tightrope, with a lack of money being one of the hazards that might knock you off balance.
If you’re a business owner, you’ll know why businesses need funding – without it, expansion, innovation and even survival can feel impossible.
Yet, with the seemingly never-ending list of tasks on your plate, it can be difficult to:
- Pinpoint which area of your business needs funding the most
- Set out a solid business plan that specifies how to get financial support
- Know which types of small business funding you should go for
If these apply to you, then you’re not alone. Two thirds of South African SMEs identified access to funding and/or cash flow as a main challenge in 2024.
In this situation, it’s important to have focus. Running an SME is tough, but if you can prioritise the areas in most need of small business funding, then you’ll be on track to financial stability.
Let’s look at the main reasons a business needs funding, and which is the right type of business finance to soften the blow in each case.
Every business needs funding to grow. Explore Lula’s alternative funding solutions today and find out how you can get small business funding to seize opportunities and grow.
Struggling to Grow? 5 Reasons Your Business Needs Funding Support
Why do businesses need funds? The reasons are varied, but each one can impact a business at various stages of its growth cycle.
Here’s a rundown of the main reasons businesses need funding to help them survive in today’s tough economic environment:
1. You need to manage cash flow
Managing cash flow is a big challenge for entrepreneurs running their small businesses.
Fluctuating expenses, such as interest rates and start-up costs, can quickly strain finances, making it crucial to have a reliable funding source. Without enough cash flow, even the best business ideas can struggle to thrive.
Often, poor cash flow stems from unorganised practices within the business. A cash flow manager, like Lulaflow, which is built into all our business accounts can make all the difference here: these online tools help you track expenses, budget better and save a ton of time in the process.
Establishing partnerships with funders can also provide the necessary financial backing to deal with these challenges. If you’re bootstrapping, it’s essential to monitor your credit score, as this can impact your access to loans and other financing options.
Positive cash flow means you can ensure your business remains resilient and poised for growth.
Best funding option: Working capital loan
Working capital finance is ideal for managing cash flow challenges. It offers quick access to funds, allowing you to cover fluctuating expenses and keep operations ticking over.
2. You have alternative energy demands
Energy needs are one of the reasons why businesses need funding in South Africa, due to a high demand, especially during peak consumer periods.
Although load shedding has been suspended, power outages have historically caused much disruption to daily operations for businesses, making it challenging for them to meet customer demands.
During peak periods, energy costs skyrocket as utilities are more frequently used to meet the surge in consumption.
This can put a strain on a business’s budget, especially in energy-intensive industries. When the demand is too high, businesses can also experience power outages, introducing the need for alternative energy sources. When the electricity supply is inconsistent, both new and established businesses face unexpected costs that come with having to buy and operate a back-up generator.
The key here is for businesses to invest in reliable energy sources and technology; however, these often come with sizeable upfront costs that need additional funding.
Without the right capital, South African SMEs may suffer from reduced operational capacity and, as a result, lost revenue.
Best funding option: Finance for energy solutions
Lending options specifically tailored to energy needs can provide the necessary financial support for SMEs to invest in alternative energy sources, such as solar power.
These might be bank loans, but often alternative lenders are a better option, as they come with less rigid repayment terms.
These cover start-up costs associated with energy infrastructure improvements while allowing your business to pay back over time.
3. You want to expand into new markets
Every business wants to grow, and to do this, you need to enter new markets. However, you’ll probably need to secure funding to make this happen.
Typically referred to as growth capital, this is the fuel you’ll need to reach this next level. It will help you increase your business’s capacity, buy extra assets and hire more staff – all critical steps for scaling your operations.
Taking this step will not only help you grow, but it’ll diversify your revenue streams and reduce reliance on existing markets.
However, growth capital is rarely effective without a solid business plan that demonstrates to lenders or investors that your idea is viable and that you’re ready to scale with minimal risk.
Do this well, and you’ll more likely attract various financing options, from bank loans to venture capitalists.
Best funding option: Venture capital funding
You may have heard the terms ‘angel investors’ and ‘venture capital funding’ and assumed that they were just for start-ups making their way into the world, but this is not the case.
VC and angel funding are worthwhile options for small businesses seeking to expand because they provide large capital injections without the need for repayment.
Instead of debt, investors take equity in the company. The flip side to this, of course, is that they gain partial ownership and influence over key decisions, but this might be worth it in return for business growth.
Beyond funding, VCs and angels bring expertise, mentorship and valuable industry connections, which can help your business scale faster.
4. You want to build an emergency fund for unexpected challenges
A sudden drop in sales, transport strikes holding up deliveries, the need for urgent repairs: all of these are unforeseen events that impact South African businesses.
Not dealing with them quickly often leads to difficulties. “From equipment failures to legal fees, unforeseen costs can push a company into a cash crunch,” says Melissa Houston, a financial management expert writing for Forbes. “Maintaining an emergency fund can help absorb these costs without destabilising your business.”
An emergency fund might come from various external funding sources, including a short-term business loan or overdraft.
The key here is fast and easy finance. It’s no good waiting around for a loan to come in when you need to urgently repair your machinery or restock inventory after a sudden surge in demand.
Best funding option: Revolving Capital Facility
A capital facility is a flexible funding option that provides quick and easy access to working capital so you never fall short due to unforeseen expenses. Think of it as a financial safety net that lets you borrow what you need when you need it.
Lula’s Revolving Capital facility is a prime example of this type of funding. Its fast application process, which only takes you a few minutes to complete online, saves you hours of filling out mountains of paperwork that traditional funding institutions typically require for loan applications.
Once accepted, you’ll have access to ‘fighting funds’ without the hassle of re-applying. You only pay for what you use, and you won’t incur any penalties if you choose to repay the amount early.
There’s one transparent account fee, too, so you don’t have to worry about hidden charges. Plug financial gaps with Lula and help your business breeze through cash flow lulls.
5. You need working capital
Working capital is the money you need to cover day-to-day operating expenses like rent, overhead costs and staff wages. You could call it the oil that keeps your business running smoothly.
Having enough working capital doesn’t just keep things ticking over, though; it also acts as a financial cushion that allows you to seize new opportunities and adapt to market changes.
If you don’t have enough money in the bank to pay for high energy bills, the last thing you’re going to think of is a new project or investment to pursue.
Working capital is crucial for any business, particularly new businesses that may not turn a profit immediately. Without this financial buffer, even minor hiccups can disrupt operations and hinder progress.
Best funding option: Short-term capital advance
Time is of the essence when it comes to working capital funding. You might need it to take advantage of a limited-time discount on bulk buys, or quickly pay an electricity bill.
A fixed-term option, like Lula’s Capital Advance, is an ideal option for this kind of quick funding. With Lula’s swift, straightforward and flexible funding options you can get immediate financial support (up to R5 million) to cover unexpected expenses or seize new opportunities.
You’ll get clear and predictable repayment terms, so you know exactly what to expect, with no hidden fees. You can repay early without penalties, helping you save and maintain a healthy cash flow.
The online application process is simple – just link your bank account to fast-track approval without the burden of extensive paperwork.
