Where can you get small business funding?

Top 7 Best Small Business Funding Resources in South Africa 2019

Funds for jumpstarting or expanding a business can be difficult to come by. Good thing there are government grants and funding options from private institutions that can help entrepreneurs come up with the financing needed to continue and expand operations.

Here are 7 of the best small business funding resources in South Africa which entrepreneurs can look for:

1. Department of Trade and Industry (DTI)

The Department of Trade and Industry (DTI) is set on helping entrepreneurs succeed in their goals since they see this as a means to achieve inclusive economic growth for the whole of South Africa. By partnering with other government institutions, DTI ensures small businesses have access to both financial and non-financial support to prosper in the industry.

DTI provides support in improving areas like manufacturing and business competitiveness. They also help small enterprises gain better market access and get a channel for inviting foreign investment.

Micro to medium-sized enterprises can benefit from cost-sharing and loans to incentives and mentorship programmes that DTI offers. Here are some of the business funding in SA they provide:

  • Automotive Investment Scheme (AIS)

To improve those in the automotive industry, the government offers grants to light vehicle manufacturers and component manufacturers.

  • Black Business Supplier Development Programme (BBSDP)

A non-repayable grant of up to R1 million is given to existing enterprises to improve their equipment, management, corporate governance, and marketing methods. To qualify, the company should be owned by 50.1% or more black, coloured, or Indian individuals and the management should be composed of at least 50% black members.

  • Business Process Services (BPS)

The purpose of this programme is to attract investors in employing young talents for offshoring activities. Companies involved in offshore BPS should have at least 80% of its youth workforce involved in the project to be eligible to apply for the grant.

  • Capital Projects Feasibility Programme (CPFP)

CPFP offers cost-sharing grants to projects that have the potential to stimulate local exports and boost the market of capital goods and services in South Africa. Funding up to R8 million can be given to projects that can create jobs, develop skills, and give a better market opportunity to micro, small, and medium enterprises.

  • Clothing and Textile Competitiveness Improvement Programme (CTCIP)

Businesses involved in the manufacture of leather goods, textile, and footwear can benefit from this business funding scheme in SA. Interested entrepreneurs must belong to a recognized regional cluster to qualify for this programme.

  • Critical Infrastructure Programme (CIP)

Projects designed for improving critical structure can be awarded up to R30 million under this programme. Private investors, companies, and even government municipalities can qualify for this type of grant.

  • Film Incentive Programme

To improve the film industry, the government encourages local film producers to continue churning new local content using financial help from this SA business funding scheme.

One of the objectives of the programme is to invite foreign producers to shoot in South African locations. Another is to help emerging South African filmmakers become capable of taking in big productions that will generate more employment in the long run.

  • National Empowerment Fund (NEF)

The NEF’s purpose is to empower the black community by involving them in economic transactions. Both financial and non-financial aid are offered to teach them how to save and invest their money.

Under the NEF, there are 4 different subcategories of SA business funding scheme:

    • iMbewu fund

Funds ranging from R250 000 to R10 million are offered in the form of debt, quasi-equity, or equity finance to both black-owned start-up and existing companies.

    • Rural and community development fund

The government supports businesses who promote sustainable improvements in the rural economy. New ventures, acquisitions, and expansions can be funded with amounts ranging from R1 million to R50 million.

    • Strategic Projects fund

This SA business funding scheme provides angel investment to black-owned businesses during the early development stages. Enterprises delving in certain industrial sectors which can significantly drive economic growth are given focus under this funding programme.

    • uMnotho fund

Black-owned enterprises can receive grants for acquisition, expansion, warehousing, and capital raising activities. This SA business funding scheme can also help black-owned businesses get listed in the JSE.

  • National Youth Development Agency (NYDA)

Young entrepreneurs are given both financial and non-financial aids through this SA business funding scheme. The NYDA aims to develop those that show potential by entering them in a mentorship programme for a minimum of 2 years. Qualified applicants are also granted funding which ranges from R1 000 to R100 000.

  • Support Programme for Industrial Innovation (SPII)

Technology development is also a priority of the South African government which is why they encourage all enterprises, as well as individuals, to partake in introducing significant advancements in the tech industry.

Government grants don’t have to be repaid nor do they accrue interest through time, so it’s a large help to entrepreneurs who want to give their small businesses a boost. They provide a great opportunity to get substantial funding without strings attached. However, the application may take around 12 months before the funds are released. In addition to that, government grants have very strict criteria for accepting applicants.

 

Banks in South Africa

2. Banks

Similar to housing and vehicle loans, banks also offer SA business loans to help entrepreneurs fund their operations either on a short-term or a long-term basis.

Banks usually offer the following business finance solutions to entrepreneurs:

  • Revolving credit plan

This medium to long-term solution lets you have additional cash on hand between payments and collections. Repayments are made in monthly instalments and the original credit limit is restored after a percentage of the balance has been repaid.

  • Overdraft

An overdraft is a credit extension that allows owners to withdraw more from their account even if it has insufficient funds to cover the amount. Banks will usually let a specific amount be used as an overdraft. Overdrafts incur interest on the outstanding balance similar to a typical loan, plus an additional fee for the overdraft service.

  • Fixed-rate repayments loan

As the name suggests, this type of loan has a fixed interest rate throughout the whole repayment term. The loan is usually payable for years.

Businesses who want to apply for a bank loan should prepare all the documents related to their finances. Presenting expense sheets, business plans, and even financial projections can increase the chance of getting the loan approved.

Another thing important to banks is the credit score. Entrepreneurs who have a low credit rating will have a harder time applying for a business loan.

Small Enterprise Finance Agency3. Small Enterprise Finance Agency (SEFA)

SEFA was established in 2012 with the mandate of helping small, medium, and micro enterprises (SMMEs) survive and thrive in the market. SMMEs are expected to contribute to society in alleviating poverty through job creation.

Cooperatives and SMMEs that belong to the agriculture, construction, manufacturing, mining, and services sectors can benefit from the financial products and services offered by the SEFA. They can get as much as R5 million when they apply for credit directly on any SEFA regional office or any of the agency’s intermediaries.

SEFA provides direct lending products that include bridging loans, term loans, and structured finances. They also offer wholesale lending products which can be accessed through registered intermediaries and commercial banks.

4. Industrial Development Corporation (IDC)

The IDC was established in 1940 and is wholly owned by the South African government. Their purpose is to promote regional development, empower economic development, and support black industrialists. Boosting local goods production, increasing sectoral diversity, and creating more jobs are some of the outcomes the agency targets.

The IDC provides cross-industry and industry-specific business funding schemes to both start-ups and established companies. Here are some of the programmes they offer:

  • The Gro-E Youth Scheme

Businesses with high potential for job-creation are qualified for this programme. Applicants must be under the age of 35, though, to be classified as a ‘youth’ in this context.

  • Agro-processing Linkages Scheme

Resource-poor farms and agro-processors who need capital to continue their operation can apply for this scheme.

  • Gold Loan Scheme

Jewellers who need working capital infusion can apply for this SA business funding scheme.

The IDC can fund businesses up to an amount of R1 billion. This is a considerable amount that can boost small and established enterprises. Aside from monetary support, the IDC also assists in creating business plans and looking for market opportunities.

5. Technological Innovation Agency (TIA)

The TIA is a public entity focused in developing technological innovations from conceptualization up to pre-commercialization. They offer three funding categories to technology-based enterprises: the Technological Development Fund, the Seed Fund, and the Commercialization Support Fund.

The Seed Fund Programme (SFP) is for Higher Education Institution (HEI) partners and for SMMEs who want to advance into developing prototypes and business cases of their research outputs. Funding can amount up to R650 000 and include assistance for securing follow-on funding.

Angel investors venture capitalists6. Angel investors and venture capitalists

Both venture capitalists and angel investors provide financial support in exchange for an ownership share and an important role in the company, particularly a seat on the board of directors at the least. They may also partake a certain percentage in the company’s revenues when the business matures.

What these investors provide is not a loan, but rather an investment in return for equity. They take high risks in exchange for potentially high returns when the company attains maturity and a certain level of profitability. Since they’re betting on the success of a starting company, they have a longer investment horizon and can wait for years before they realize any gain.

Investors usually focus on a certain industry or prefer a company located in a specific area. Some select those who are in a certain stage in their business development before getting in the picture.

Entrepreneurs looking for an investor must research their experience and reputation. Investment firms will also do the same and investigate a company’s management, documents, processes, financial statements, and products and services.

Agreements with any investor that involves financial matters should always be pursued with a written contract. Verbal agreements have no weight when problems arise, like when the investor decides to withdraw from funding the business or when they suddenly speak of different terms than what was agreed on.

Crowdfunding in South Africa7. Crowdfunding

Business funding in SA can also be obtained from ordinary citizens through crowdfunding. Crowdfunders aren’t necessarily investors and they don’t even need to have any financial knowledge to understand the profitability of a business. Unlike angel investors and venture capitalists, they won’t usually ask for a piece of ownership in exchange for their money.

However, crowdfunders expect to receive a ‘gift’ in exchange for their contribution. This can be a product, a discount, an exclusive perk, or the simple inclusion of their name in the list of contributors.

Crowdfunding is an investment scheme that poses a low risk to business owners. Entrepreneurs get to retain full control over their company unlike with venture capitalists who typically ask for a board seat. Usually, owners hold no obligation to crowdfunders to return their contributions in case the business flops. This differs by platform, though, as some have legally and financially binding terms that business owners should adhere to.

Popular crowdfunding schemes in SA are StartMe, Thundaund, and Uprise.Africa.

 

Conclusion

Small businesses are encouraged to expand their operations and continuously churn out products and services that can help improve the local economy. Through government grants and business loans, start-ups and established enterprises have a chance to boost their finances.

Global reputation, minority empowerment, job creation, and technological innovations are at the heart of SA business funding schemes offered by both private and public institutions. The list of financing programmes above will help entrepreneurs grow and achieve their full potential.

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