[Question] Funding advice

[Chaz]

How does one get funding to import products?

I do not have collateral, but am the sole authorized distributor for a international company.

I want to bring in a LCL of products to market it. My business was registered in 2008 and not really trading. I have been getting the products registered, marketing and selling the odd few products i brought in with my own money.

The market is big and there is a demand. The product uses a special trade marked manufacturing process. How does one go about it?

How do I approach for financing, and approach retailers telling them it cod, but they are scared to pay upfront and still wait 30 days for shipment?

Any advice please!!!!

[BusFact]

I'm interested to see what others have to say about this, because my experience has been that you've got very little chance.

With no collateral, the banks won't look at it.

You're looking to try and find some investor who will lend you money money based (essentially) on your promises and expectations. No guarantees at all. Thats a brave investor.

If you can get a confirmed order from a large company, then you might find it a bit easier to get a loan (although not sure who from). The order provides the investor with a bit of a guarantee that the product will in fact be sold and paid for when it arrives. The customer only has to pay for it once it is delivered.

Otherwise my best suggestion is to take the profits made from selling the few products you bought with your own money and buy some more stock your self - even if its lower quantities. Then gradually build up your stocks this way be reinvesting your own profits.

That way you stay independant and have no stress over debts.

[adrianh]

Funding for imports

The question that rolls around in my mind is how come you are "the sole authorized distributor for a international company" if you have absolutely no funding to distribute the product and haven't been able to do so in 2 years?

Ok, I am looking at the matter from a totally different perspective but hear me out. There are many small companies that hold onto distribution rights that they are unable to service. The effect is that the product becomes throttled. I can think of a number of instances: A school teacher has the sole distribution rights to a product that I use. He doesn't have the financial clout or foresight to hold stock. Whenever I need stock I have to pay him up front and wait for 4 weeks to get the product in. Now, once the product comes in he still adds his margin. The point is that it is faster and more cost effective to buy whatever I need from an overseas supplier using my credit card and have them ship it to me via DHL. It is cheaper and quicker.

The problem is that a country like South Africa is a mere blip on a large companies radar and if the local distributor doesn't perform it makes no real difference to the large companies bottom line. Where does it leave the local consumer of that product - with his finger stuck deep in his ear.

[Gary Simmonds]

Hi Chaz

Your problem is not an uncommon one and the biggest stumbling block to small business development in South Africa, in my opinion, is access to funding.

I work for GroFin out of the offices here in Umhlanga and we do viability based lending, in other words we look at the viability of the business when considering an application rather than the collateral available. As it is higher risk though it is more expensive.

The funding of stock with a medium term loan however may not be the best but as a start it may be worthwhile considering.

Happy to discuss it further and suggest you visit our website at grofin.com for some introductory information and then would be happy to get together to discuss.

Regards

[Chaz]

The question that rolls around in my mind is how come you are "the sole authorized distributor for a international company" if you have absolutely no funding to distribute the product and haven't been able to do so in 2 years?

Ok, I am looking at the matter from a totally different perspective but hear me out. There are many small companies that hold onto distribution rights that they are unable to service. The effect is that the product becomes throttled. I can think of a number of instances: A school teacher has the sole distribution rights to a product that I use. He doesn't have the financial clout or foresight to hold stock. Whenever I need stock I have to pay him up front and wait for 4 weeks to get the product in. Now, once the product comes in he still adds his margin. The point is that it is faster and more cost effective to buy whatever I need from an overseas supplier using my credit card and have them ship it to me via DHL. It is cheaper and quicker.

The problem is that a country like South Africa is a mere blip on a large companies radar and if the local distributor doesn't perform it makes no real difference to the large companies bottom line. Where does it leave the local consumer of that product - with his finger stuck deep in his ear.

Hi, this company was small, and only known of really in there country. I came across it and approached them. To register there products has been a long and expensive process that I had to do all myself and find out the long way. Marketing it myself etc..

I have been buying from them and marketing and selling the product.

Now I have gotten better pricing by importing via the sea shipping methods.

[Chaz]

I'm interested to see what others have to say about this, because my experience has been that you've got very little chance.

With no collateral, the banks won't look at it.

You're looking to try and find some investor who will lend you money money based (essentially) on your promises and expectations. No guarantees at all. Thats a brave investor.

If you can get a confirmed order from a large company, then you might find it a bit easier to get a loan (although not sure who from). The order provides the investor with a bit of a guarantee that the product will in fact be sold and paid for when it arrives. The customer only has to pay for it once it is delivered.

Otherwise my best suggestion is to take the profits made from selling the few products you bought with your own money and buy some more stock your self - even if its lower quantities. Then gradually build up your stocks this way be reinvesting your own profits.

That way you stay independant and have no stress over debts.

Hi, I have been getting response from retailers, that want to buy, but to pay up front and wait for stock does scare them a bit. I can imagine, who would pay R5000-R10000 and have to wait. Even though my business is a registered cc.

If I have many confirmed orders and also large retailers wanting to purchase, would it not help with funding? If I approach lets say SBDC with it, would they not help? Or even a bank?

Another silly question. What does one write regarding a confirmed order or structure the letter? So it can be signed and shown for finance?


Do retailers usually sign such things? Even though the product has and can outperform competing brands? Also uses revolutionary technology.

[Dave A]

Now I have gotten better pricing by importing via the sea shipping methods.

So the problem is bigger orders and capital tied up for longer, then?

[adrianh]

Capital etc

The biggest problem with finding investment (as far as I am concerned) is that the potential investor asks this question: What's in it for me?

The investor takes a risk on your ability to multiply his money (Even the bank does considering that you would be paying back interest) I think that question is rather this: How do you sell your ability to mulitply the investors money?

Investors don't take uncalculated risks (well the sensible ones don't). The problem that you face is far bigger than simply presenting a potential investor with an invoice and an idea. They look for a viable business model. Now it is said by bank managers that they can see by looking at the paperwork whether a business is viable or not, and this is true. There are some truly fundamental bases that have to be covered.

A good way of looking at a basic model is from the top down rather than the bottom up. What I mean is this: lets say you need to make R15K a month to stay afloat. Now, lets say your product costs R 10 and you sell for R20 how many items do you need to sell to make your money but, you now need to consider cost of sales (how much does it cost in reality to make that sale: R2 / item for transport, R1 for your operational costs, R 1 for the guy that carries the stuff around for you etc) Your input cost is now not R10 but it is R14, which means that instead of making R 10 you now make R6. Now you need to look at the problem top down again: if you wan to make your R15K a month how many items do you need to sell or should you put the price up etc. You could build a good business model using a spreadsheet because you should be able to determine your costs, your required profit, etc. you must also remember that you need to factor in the cost of repaying the loan. Another thing that people miss is that as the business grows, the costs do not rise proportionally to the sales. Think about it this way, you have one worker that does all your packing; one day the work gets too much and you have to hire another worker. The guy is now on your payroll whether you sell the extra product or not. Christmas comes around and there is no work yet you promised the guy a 13th cheque. Another thing that people do not consider is buffer money (I'm sure there is a better term for this) anyway, say your supplier forces you to bring in 100 items at a time and expects you to pay up front (you lay out the cash and wait for the product to arrive) but you still have to pay yourself and your staff and your customer pays you on 30 days. So you also need to work out what is the worst case cash that you need available. People never seem to factor this into their loan. Another thing that is not factored in is that (Sh_t happens) you ship your product to the client and the truck gets hijacked or the parcel goes missing (yes, this has happened to me) - what do you do - are you able to cover the loss yourself - do you need insurance etc.

Anyway, this whole waffle that I just wrote is simply to show you that investors want to see that
1. You have a good product.
2. That you know where you are getting the product and who you are selling it to.
3. That you understand your market.
4. That you understand the numbers behind your business
5. That you have a plan for the future.
6. That you will grow their investment
7. that if your business goes down the toilet that their investment is protected.

No 4 & 7 are the most important in that they will not lend money to somebody that cannot do the math and they will not lend their money to somebody who doesn't put his own chop on their block!

Don't get me wrong, this is all doable, some people know how to do these thing through education and some through experience, but you must think these issues through before you approach an investor.

BTW: We started small, just like you and we kept banging our heads against the same brick walls as you do but we learned the hard way...Crapping ourselves when suppliers come looking for money, crapping ourselves when the customer decides he will only pay in 60 days, wondering whether the bank is going to take awaty the house...but at the end of the day things seem to be working themselves out. Like Shaggy says in one of his songs; "Never give up"

[BusFact]

The investor takes a risk on your ability to multiply his money (Even the bank does considering that you would be paying back interest) I think that question is rather this: How do you sell your ability to mulitply the investors money?

Excellent quote to summarise what really needs to be done.

[helpwithdebt]

Hi all

This is probably the worst case scenarion for any business owner in South Africa.
Banks are great? yeah right. Like said before, you can have the most brilliant idea and the bank manager would entertain you for hours in listening and sounding very exited, then before he gives you the application form he will ask: " where is the property situated, that is not bonded, that you will sign as surety?"

We have franchised our company and struggled to sell off for as little as R60 000. Eventually after the red tape from the banks we decided to give away free agencies.

People want to work and we can work, there should be less obstacles.

Cheers

[Chaz]

Hi Chaz

Your problem is not an uncommon one and the biggest stumbling block to small business development in South Africa, in my opinion, is access to funding.

I work for GroFin out of the offices here in Umhlanga and we do viability based lending, in other words we look at the viability of the business when considering an application rather than the collateral available. As it is higher risk though it is more expensive.

The funding of stock with a medium term loan however may not be the best but as a start it may be worthwhile considering.

Happy to discuss it further and suggest you visit our website at grofin.com for some introductory information and then would be happy to get together to discuss.

Regards

Hi Gary, thank you for the advice. I will contact you soon.
Does collateral as work in the form of the products? IE: if i have say about R10 000 worth of stock that I purchased, is it also classified as collateral? Or if I have R10 000? Are you similar to SBDC? As they take a share in the business?

[Chaz]

So the problem is bigger orders and capital tied up for longer, then?

Sort of... If I purchase small orders and have sent via postal or courier, it is very expensive. But if i bring in say 200 units the costs are much lower, and stores would purchase. But to have stock on hand as they place orders is needed. As how does one get access to say about R80 000 for over 200 units. I can market it, put as they show interest they want the stock within a few days or some want an account. The potential for this product is huge and people that have been using it are seeing results in a short time.

[Blurock]

How does one get funding to import products?

I do not have collateral, but am the sole authorized distributor for a international company.

I want to bring in a LCL of products to market it. My business was registered in 2008 and not really trading. I have been getting the products registered, marketing and selling the odd few products i brought in with my own money.

The market is big and there is a demand. The product uses a special trade marked manufacturing process. How does one go about it?

How do I approach for financing, and approach retailers telling them it cod, but they are scared to pay upfront and still wait 30 days for shipment?

Any advice please!!!!

There are various institutions that will provide trade finance to import. I need to know more about the product though - is it to be assembled/manufactured or altered in any way and what volumes will you be trading? Why does your principal/supplier not provide terms? Once landed here, you may consider factoring - providing you deal with reputable buyers.
Good Luck
BluRock

[braganza]

Finding Funding

Your dilema is something shared with numerous small players without good trading history.

Your alternatives are as follows:

If the demand is as good as you say, you should have no difficulty in finding private investment capital.

You could always look for established businesses in the same category and do a deal with them to distribute your product. Whilst you may make less margin, you should then be able to build volume and thus collateral to increase your investment over time.

Hope these thoughts assist.

[Justloadit]

Something else to factor here.

You bring in a container of product, and it is not quite to specifications. Do you send the container back or do you modify the goods yourself to specification? there are costs involved!
Who supplies warranty? Do you replace under warranty, or do you repair? This costs money!

Customs holds your parcel to check for days.