Why the Wrong Funding Can Cost Your Business More Than No Funding at All

But taking the first funding offer available could create another problem: the wrong type of finance can put unnecessary pressure on a business and limit its ability to grow.

According to Finfind’s 2025 SA MSME Access to Finance Report, South Africa's SMEs face an estimated R350 billion funding gap, driven by challenges including limited collateral, insufficient business credit data, complex funding requirements and low levels of funding readiness.

The report also highlights a mismatch between the type of funding businesses need and the finance products available to them.

For entrepreneurs under pressure to raise capital, this can make it tempting to accept whatever funding is available.

But Emma Parker, Sustainable and Impact Finance Manager at Anglo American, says business owners should first ask themselves why they need the money and which type of finance best matches that need.

“Before applying, you should really ask yourself why I need this finance and which finance options match that.”

Not all funding works the same way

The type of finance a business needs should depend on what the money will be used for.

For example, taking a five-year loan to address a three-month cash-flow problem could leave a business paying off debt long after the original problem has passed.

Long-term debt is generally more suited to assets and investments such as equipment or expansion projects, while short-term finance can be more appropriate for working capital, seasonal fluctuations or temporary cash-flow gaps.

Entrepreneurs can consider several forms of funding, including:

Grants: Often provided by government, donors or development finance institutions. They are generally non-dilutive, meaning entrepreneurs do not give up equity in their businesses.

Debt: Includes options such as working-capital finance, microfinance, purchase-order funding and asset finance. Each comes with different costs and repayment requirements.

Equity: Investors provide capital in exchange for an ownership stake. This can be useful for early-stage businesses, but raising equity too early can mean giving away a larger share of the company than necessary.

There is therefore no single funding option that works for every business.

Investment readiness matters

The Impact Finance Network (IFN), an Anglo American programme, aims to help businesses understand their funding options, become investment-ready and connect with suitable investors.

Since launching in 2021, the network says it has supported more than 100 businesses, mobilised over R1.8 billion in third-party capital and helped sustain more than 46,000 livelihoods across Southern Africa.

Its support includes business planning, financial modelling and pitch preparation, followed by connecting businesses with potential investors.

For South African entrepreneurs, the message is simple: raising capital is only part of the equation. Choosing the right capital for the business, at the right stage, can be just as important.