MANY business owners know how hard it is to get a business loan from a bank. If you don't have collateral it is almost impossible.

So what do you do if you know that it is the right time to expand but you do not have the capital or enough collateral to secure the amount you need from a bank?

There are some organisations that will invest in your business in exchange for shares. Current examples of these are Business Partners and the Black Economic Empowerment (BEE) investment sections of some banks.

This is not an easy or cheap way to get money, however. The very reason why most banks are weary of owner-managed businesses, namely risk, is also the reason why such investors want to make sure they get an adequate return.

“We expect a return of at least 25% on our investment to compensate for the risk we are taking,” says Nazeem Martin from Business Partners.

One of the packages Business Partners offers for example is called a Risk Partner.

Say you need R500 000 for your business. You can provide collateral for R300 000 of that amount. The other R200 000 is called an “unsecured risk portion”. Business Partners will lend you the R500 000, at around prime rate.

This rate is sufficient to cover their risk for the R300 000 but on the R200 000 they are looking for a further 15% return.

They will make projections regarding the growth of your business and take a portion of shares that should deliver a return of 15% over the five years of the loan. They will also take a dividend from the business.

From the business owners' perspective things don't seem quite so fair. You not only have to pay back the entire loan of R500 000 over 60 months at prime rate, you are also giving up a shareholding in your business.

The advantage is of course you are getting money when you need it, when nobody else wants to give it to you.

Another advantage of this type of finance is that the investor has a stake in your business and it is in its interest that you succeed.

Unlike a bank, it will not call up a loan and demand full payment when things go bad. 
Business Partners have a support team of mentors and consultants ready to advise the business owner (at a price).

Says Shiraz Ahmed, owner of the Colorado Spur in Gardens, Cape Town: “The biggest advantage of my relationship with Business Partners is the mentorship support. I also find the fact that they want ongoing financial management reports a big help in keeping financial control over my business.”

Business partners also offer other packages, depending on your circumstances. One form an investment can take is that of a shareholder's loan, which is a loan that is paid back on terms agreed to by the shareholders, as opposed to a term loan where a fixed monthly rate is payable over a fixed period.

The advantage is that in months where cash flow is tight, the business does not have to pay an instalment. The disadvantage for the business owner is that in order to get a shareholder's loan, you have to make someone a shareholder.

Business Partners also has a royalty scheme, where you still have to pay back your loan to them at prime, with the royalty fee in addition.

Riaz Ismail (pictured above) bought the Epping Service station, Cape Town, a year ago with the help of a loan from Business Partners. He managed to negotiate a royalty deal.

“I think it is because I had other options with other financial institutions and I was prepared for the intense negotiations.”

Contact Business Partners 011 480 8700 and Ahmed on 082 892 8715. 


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