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Updated 10.01.2022

Funding for small businesses in South Africa

Starting a new business is an exciting experience for just about any entrepreneur. However, there are tons of hurdles that many entrepreneurs may face. This includes getting funding for small businesses in South Africa.

Funding is one of the most important aspects of any business. Furthermore, no business can exist without funding. Fortunately, there are a few institutes that offer to fund small businesses in South Africa. These institutes assist small businesses in achieving their objectives with financial help. Additionally, funding helps transform a business and take it to where it needs to be.

In this article, we take a close look at some of the best funding options available in South Africa.

What is the purpose of funding small businesses in South Africa?

The sole purpose of funding is to help small businesses take off. Additionally, it assists businesses in growing and succeeding. Small businesses are the backbone of the country’s economy. Therefore, funding also assists with the country’s economic growth.

Small businesses have a few types of funding available to them. It is best that they pick a funding method that will work for them.

Types of small business funding

There are different types of funding available to entrepreneurs. This includes:

  1. Venture capital funding
  2. Equity funding
  3. Government funding
  4. Personal loans
  5. Business loans

Venture capital funding

Venture capital funding is one of the most common forms of funding. Money is attained from personal investors, investment banks, and financial institutes. Most entrepreneurs opt for venture funding if they cannot get traditional funding i.e. loans. Venture capital funding usually allows investors to have some say in business decisions. Therefore, entrepreneurs and investors have to often work closely together.

Most investors look for businesses with well-executed business plans. This is mainly because they are investing their money in a business idea. Therefore, it’s important for them to believe in the business.

Equity funding

Equity funding is another option available to small businesses. The concept is pretty simple; shares are sold in return for capital. The share’s selling price is determined by the valuation of the business. Once the shares are sold the investor gains a stake in the business.

Government funding

This type of funding is provided by the South African government. The purpose of government funding is to help previously disadvantaged people. Additionally, government funding does not need to be repaid. With that said, government funding can be very challenging to get. Entrepreneurs will have to follow a lengthy application process.

Businesses that get government funding need to also meet certain requirements. These requirements are often extremely strict. Entrepreneurs are encouraged to do plenty of research before applying.

Crowdfunding

Crowdfunding has become increasingly popular over recent years. This practice allows businesses to generate funding in a different way. A large number of people raise money to help fund small businesses. These people all contribute small amounts of money through a crowdfunding platform.

Entrepreneurs can create a campaign that allows anyone to contribute. This form of funding is unlike traditional funding; however, it can become very successful.

Self-Funding

Self-funding is a common ways of funding one’s business. Here, businesses owners use their own funds and loan into their business. This can be done by transferring money from their personal bank accounts to the business bank account. Additionally, business owners might also use their credit cards, investments, and home loans. The business will then have to repay the owner the money that was loaned.

Business loans

Business loans are by far the most popular form of funding. Entrepreneurs go to financial institutes and borrow money to start up. This money is then transferred to the business to get operations going. The business will then have to pay a monthly installment to the bank. Business loans often come with hefty interest rates. Therefore, this type of funding can deeply affect the business’s profits.

If a business fails, it will still need to repay the loan with surety.

Best funding for starting small businesses in South Africa:

Now that we’ve discussed the types of funding we can look at the best available options. Listed below are some details of funding for small businesses.

Naspers (Venture capital funding)

Naspers is one of the largest tech investors and global internet groups. They help build new tech companies by empowering entrepreneurs and communities. The main sectors that they fund are Entertainment, Media, E-Commerce, FinTech, EdTech, etc. Some of their clients include Takealot, Superbalist, and many more.

Location: Cape Town

Website: https://www.naspers.com/

Angel Investment Network (Venture Capital Funding)

The Angel Investment Network is a great place for small businesses to attain funding. They have an extensive list of investors on their network. Furthermore, Angel Investment Network currently has over 291, 000 investors listed on their website.

These investors are constantly on the lookout for new businesses to invest in. There are no limitations as investors look at businesses across all sectors. Additionally, these investors have a large network of contacts. Thus, allowing entrepreneurs to connect with more potential clients.

Entrepreneurs will first need to register on the website. Thereafter, they will need to submit a pitch online. Potential investors who are interested will then view the pitch.

Newtown Partners (Venture Capital Funding)

Newtown is another reputable venture capital that has helped thousands of entrepreneurs. The company invests in emerging, disruptive technology startup businesses. Furthermore, the Newtown Partners nurtures early stage companies. Thus, allowing them to thrive in a competitive market.

The Newtown team helps start-ups by providing them with support and advice. Additionally, the team has a proven track record in tech entrepreneurship.

Entrepreneurs can submit their pitch ideas using the pitch deck template. This template is a general guideline of what entrepreneurs are expected to pitch. The pitch will then be reviewed and Newtown Partners will be in contact. The final step involves meeting investors and answering their questions.

Location: Cape Town and San Diego

Website: https://www.newtownpartners.com/

Empower Africa (Equity funding)

Empower Africa connects entrepreneurs, investors, and experts on one network. Its mission is to create long-term value to African projects. Furthermore, they invest in companies that are sustainable and socio-economically driven.

Entrepreneurs are encouraged to apply online if they would like to seek equity funding. Simply visit the Empower Africa website and click on “apply”. Enter your details and become a member.

Location: Israel and USA

Website: https://network.empowerafrica.com

Future Growth Asset Management (Equity Funding)

Future Growth assists debt and equity funding to businesses looking for capital. The company has very strict equity funding criteria that need to be met.  They prefer to fund well-established companies with a 2-3 year track record.

Furthermore, the company covers a wide spectrum of sectors. This includes agriculture, renewable energy, housing, infrastructure, and commercial property.

Businesses can submit all their funding proposals to businessfunding@futuregrowth.co.za. Thereafter, a representative will contact them with a final decision.

Location: Cape Town

Website: https://www.futuregrowth.co.za/

Hlayisani Capital (Equity funding and Venture Capital funding)

Hlayisani Capital is a firm that focuses on growth investment opportunities in South Africa. Their philosophy is to transform local economies. This firm offers both, equity funding and capital funding. Additionally, they operate in ICT, manufacturing, agriculture, health industries, and education.

Candidates can apply by visiting the Hlayisani Capital website. The firm looks for businesses that deliver good returns and high growth. Here are some other criteria that need to be met:

  • Businesses need to have innovative ideas
  • The company needs to have a strong management team
  • The business should be a market leader in the sector
  • Have significant socio-economic impact

Location: Fourways and Stellenbosch

Website: https://hlayisani.com/                                                 

Isivande Women’s Fund (Government Funding)

This exclusive funding is aimed at empowering women. The Isivande women’s fund provides affordable finance to business women. However, businesses will need to be fully operating for at least 6 months before applying.

Website: https://www.gov.za/services/business-incentives/isivande-womens-fund

Email: info@idf.co.za

National Youth Development agency (Government funding)

The main goal of NYDA is to assist young entrepreneurs to establish businesses. Eligible candidates need to be between 18-35 years to apply for NYDA funding. 

NYDA focuses on targeted and integrated programs. Furthermore, these programs enable the youth to contribute to the economy. Additionally, its objective is to increase socio-economic empowerment to the youth.               

Location: Woodmead

Website: http://www.nyda.gov.za/

SEFA (Government funding)

Small Enterprise Finance Agency is another popular government funding. They provide development finance and funding to small businesses in South Africa. SEFA is committed to providing its expertise and commitment to SMMEs.

The government has allocated R1.4 billion to SEFA. These funds are to be invested in small businesses.

Location: Centurion

Website: https://www.sefa.org.za/

VodaLend Business funding

Vodacom has launched this service for businesses looking for funding. The initiative was launched to help small businesses that need extra cash flow. The application process is quick and businesses can get approved within 24-hours.

To qualify for this service, businesses need to be operational for 12 months. Additionally, they will need R500k annual turnover. It is also vital that the business has a good credit rating. Entrepreneurs can also enjoy free legal assistance with this service.  

Those who would like to use this service will need to provide some details about their business. Call 082 1960 or email fundindsupport@vodacom.co.za.

This product is perfect for funding small businesses in South Africa. Furthermore, businesses can enjoy up to R1.5 million worth of funding.  

Website: https://www.vodacombusiness.co.za/business/solutions/fund-my-business

Partner Elite- A division of RaizCorp

Partner Elite is slightly different from the previous funding firms we’ve discussed. They “look for businesses that can scale”. Their approach is to work with entrepreneurs to ensure that the business is sustainable and profitable. Partner Elite assists small businesses in the following sectors:

  • Engineering
  • Digital Media and marketing
  • Payroll
  • Education
  • Lead generation
  • Short-term insurance
  • Mining services
  • Cloud solutions industry

Furthermore, all funding is direct funding from Partner Elite itself.

Location: Johannesburg

Website: https://www.partnerelite.co.za/contact/

Department of Small business development (Government funding)

The Department of small business development was founded to support small businesses. Its mission is to contribute to job creation and assist economic growth. The program emphasizes entrepreneurship amongst people with disabilities, women, and youth.

Their objective is to facilitate development and growth for small businesses. Furthermore, DSBD helps facilitate partnerships in the public and private sectors. Small businesses can enjoy sustainability and access to funding.

Location: Pretoria

Website: www.dsbd.gov.za

National Empowerment Fund

The NEF helps black owner businesses in support of the BEE legislation. Their aim is to facilitate support and finance to businesses that require funding. Additionally, NEF is all about creating empowerment for black people.

Retail Capital

Retail Capital offers flexible, online funding for small businesses. This funding can then be used for all a business’s needs.

Entrepreneurs will first need to get a free quote. The quote will then notify entrepreneurs if they qualify for funding. Thereafter, the application process will begin. Businesses will need to provide all their details and requested documents. The funds will then become transferred to the business.

To apply for Retail Capital funding a business is required to make a turnover of at least R50, 000 a month. Additionally, the business also needs to be in full operation for at least 6 months.

Retail Capital funding does not require any form of collateral. They also provide entrepreneurs with a flexible payment structure. Thus, allowing businesses to repay funding based on their turnover.

Location: Cape Town

Website: https://www.retailcapital.co.za/business-funding

How to apply for funding

Most of the above-mentioned websites have detailed specifications that need to be met. Therefore, it’s vital to check what is required before applying.

However, most funding organizations will require a business pitch. Therefore, it’s important to have the perfect pitch to get funding from investors. Furthermore, this will help prove that the business is heading in the right direction.

Tip to prepare a successful pitch:

  1. Be prepared and find out more about your investors. This will allow you to tailor your entire pitch around the investor. Understanding your audience will make everything a lot more easier.
  2. Ensure that everything is to the point. Investors often want crucial points regarding the business. They do not want to read lengthy paragraphs that have no essence. For this reason, try and use bullet points so that investors can understand right away.
  3. Be mindful of the length of your pitch. No one wants to sit through a 2 hour pitch. Try and focus on the key aspects of the business. Describe what your business does so that investors can clearly understand.
  4. Discuss financial projections with the investors. This will show them that you have done market research and that you’re serious. It’s absolutely vital that all projections should be as accurate as possible.
  5. Sell the pitch by justifying why your business is a great investment. This will require a lot of convincing. Therefore, it’s important to know the ins and outs of your business.
  6. Practice your pitch until you have nailed it.

Who can apply for funding for small businesses in South Africa?

Each funding company has its own policies. For instance, most government funding requires businesses to fully comply with BEE.  However, private funding institutes grant a lot more leeway. They usually fund small businesses that show promise.

Here are some other criteria that may be looked at:

  • How well executed the business plan is
  • The businesses monthly turnover
  • How long the business has been in operation
  • The purpose of the business
  • How sustainable the business is
  • Future financial projections
  • Evidence that the business is needed

Just about anyone can apply for funding. However, funding companies only look at the best applicants. Some funding firms might also have an incubation period for small start-up businesses. They will allow them to closely monitor the business from the beginning.

The bottom line- funding for small businesses in South Africa

In conclusion, it’s safe to say that there are plenty of funding firms available in South Africa. These firms are all willing to fund small businesses with potential. An entrepreneur can determine which funding method is most suitable for him/ her. There are a few important things to ask before seeking funding:

  • What will be the best option for the business?
  • What type of funding option will work best for the business?
  • Will the business improve after getting funding?
  • What will the business benefit from the funding?
  • Will funding be a short-term or long-term fix?

It should be noted that funding organizations look at a variety of criteria. Therefore, it’s of utmost importance that business owners do thorough research before applying.

Typically speaking, government funding is the best option. This is because small businesses do not need to repay the funding. However, government funding takes a long time to get approved. Therefore, it might not be ideal for businesses that require immediate funding.  

Additionally, businesses can look into equity funding. The reason is, there is a lot of potential for the business to grow. Furthermore, the business can always buy its shares back at a later stage.

In our opinion, the least favorable funding is a business loan. This is because the business will have to repay funding along with interest.

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