Small business funding is increasingly taking centre stage in economic policies around the globe. Matter of factly, small businesses as a whole have captured the zeitgeist. This is because it’s broadly accepted that small businesses are the true vehicles of growth in any economy.
You’ve probably heard it yourself, that’s why like us you wear your entrepreneurship hat with pride. Small and medium-sized enterprises (SMEs) account for over 95% of firms
economies. Additionally, they contribute up to 60% of GDP.
This is no small feat in economies with companies larger than most developing economies combined.
In the South African economy though, the figures are curiously opposite. While the general sentiment is that small businesses are contributing, more, they actually pale in economic participation to their larger counterparts and government agencies.
This puts a real threat to the National Development Plan’s goal of 90% employment in small business by 2030.
The upside is both government and the private sector have been stepping up small business funding efforts. With one of the key causes of small business failure being lack of funding to scale, let’s look at some organisations you can turn to.
Small Business Funding that Qualifies
Generally, small business funding is not that hard to find, it’s affordable funding that’s impossible. Most banks and financial institutions will gladly issue you a loan to get your venture growing, but the requirements are steep.
For most entrepreneurs, you simply do not qualify. Even if you do, the terms are likely so steep your business might fall into the traps of early business funding.
So for this list, we are looking for those funding sources directly geared towards small businesses. They can be government or private sector, provided their mandate is the promotion of grassroots entrepreneurship.
This can be explicit, like government agencies created specifically for this task. It can also be implicit, like funding schemes whose terms are so favourable for small businesses they help them excel, even though not directly marketed as such.
Some of the required criteria we’ll be looking at includes;
- Interest rates low enough not to significantly impact business cash-flows and profitability
- Payment terms that allow small businesses to gain traction before outflows
- Reasonable collateral terms accessible to small business
- Offer any training or support services for business, even without a cash injection
If this is small business funding that could make a difference for your fledgeling startup, dust off that business plan. Here’s a list of organisations you should be sending it to ASAP.
- The Department of Trade and Industry (DTI)
- Industrial Development Corporation (IDC)
- National Empowerment Fund (NEF)
- National Youth Development Agency (NYDA)
- Small Enterprise Development Agency (SEDA)
- Small Enterprise Finance Agency (SEFA)
- Business Partners
The DTI is a government agency whose mandate is to promote the establishment and success of competitive business in South Africa. One of the core themes of the DTI is broadening participation.
It’s aimed at increasing the economic footprint of marginalised economic agents through various empowerment schemes.
“It further seeks to transform the largely informal economy via Small, Medium and Micro−sized Enterprise (SMME) development and the channelling of support measures to the Co-operatives sector.”
In line with this theme, the DTI is one of the biggest stakeholders in small business funding and empowerment as a whole. The DTI is responsible for a great deal of funding, grant and incentive schemes for small businesses in the South African economy.
A number of them will feature independently on this list, but as a funding vehicle, the DTI simply can not be ignored. It’s worth your while visiting their website to find out criteria for qualifying for their various schemes.
The IDC, as stated on their website is a partner for development finance. It’s owned by the South African Government and was put together to finance economic growth and industrial development. Two mandates of the IDC are particularly beneficial for small businesses,
- Leading the creation of viable new industries;
- Taking up higher-risk funding projects.
Small businesses are both high risk, and with good planning can be a viable new industry. Like the DTI, the IDC has a number of funding, grant and incentive schemes, some of which will feature on this list.
Small business funding with the IDC takes the shape of;
- Equity and quasi-equity
- Trade finance
- Venture capital
Their requirements broadly match those of traditional financing institutions like collateral, proper business planning and shareholder contribution.
An important distinction is they tend to be significantly lowered, making funding accessible to small businesses and disadvantaged individuals.
You should note that the IDC doesn’t engage in refinancing. In line with their mandate of economic and industrial development, their interest is more in projects that expand the economic base.
So while you can get funding for business growth, funding for existing assets will not be provided. Over and above financial assistance, the IDC looks to foster sustainable business networks that can lift the economy.
Their funding comes with business naturing, pre- and post-investment assistance based on the evaluated needs of each project/enterprise.
The NEF was specifically created to fund and develop small businesses. The fund creates innovative investment and transformation solutions to advance sustainable small business participation in the economy.
The NEF supports the pillars of enterprise by providing finance and financial solutions across a range of sectors. It also provides project finance, to allow early-stage entrepreneurs to participate in high impact projects without paying a premium for funding.
Like with the first two, the NEF has a number of funding, grant and incentive schemes, some of which will feature on this list. Their funding criteria are for businesses inline with Broad-Based BEE in terms of government legislation.
They observe principles that promote real economic empowerment while observing sound investment principles. They, therefore, provide small business funding for those business owners with viable businesses. Like you. Important considerations include;
- The commercial viability of the business
- Operational involvement at the managerial and board levels by black people
- 50.01% black ownership
- Ability to repay funding
- Employment creation
- Preference for rural and economically depressed areas
The youth are the future of the nation, while small business is the future of the economy. No organization marries these two in their small business funding like the NYDA.
The NYDA’s mandate is broad, tackling all challenges faced by the youth, and youth entrepreneurship is front and centre.
The NYDA views entrepreneurship as a means of tackling sustainable livelihoods, reducing poverty, and ending inequality among the youth.
The NYDA focusses on grant finance for small businesses. Microfinance grants support survivalist youth entrepreneurs and support corporation of youth in the cooperatives sector.
Their objective is to afford young entrepreneurs access to financial and non-financial support to thrive in their survivalist business.
This is particularly important because survivalist entrepreneurs are usually overlooked because of their limited economic impact. They can even be overlooked for small business funding aimed at emerging businesses because they are not as glamorous.
The grant scheme is unique in that it’ll support you from the planning stage. The NYDA is one of the few organisations that fund ideas in the development stages.
It’s also unique in that it allows for applications for very low levels of funds, from R1 000.00.
SEDA is a full-scale entrepreneurship support scheme aimed at providing assistance to starting, building and growing businesses. Because their processes are well balanced between financial assistance, mentorship, training and availing access to facilities, they make a great small business partner. Their programs include;
- SEDA Talk: Ideal for those looking to start a business and looking for information on what it takes.
- Where should I start?
- Starting Your Business
- Business Plans
- Forms of Business
- SEDA Business Start: Ideal if you are ready to jump into business, and need help getting started.
- Marketing Small Businesses
- Financing Your Business
- Managing Your Business
- Frequently Asked Questions
- SEDA Business Build: Ideal for entrepreneurs who have already started their journey and need assistance on sustainability and strong business models
- Management Skills
- Targeted Procurement
- Tender Opportunities
- SEDA Business Grow: Ideal for entrepreneurs who have a good understanding of their business and are looking for growth opportunities.
- Business Management
- Management Systems (STP)
- Trade Point Programmes
- Human Resources
- Legal Issues
It’s easily noticeable that SEDA offerings are geared towards every stage of the entrepreneurial journey. Before approaching them, take a good assessment of your exact needs to fully reap the benefits of their offering.
Skipping a stage will only shortchange your business, taking one before you will stunt your growth. Additionally, It’s important to not only take advantage of their small business funding but their incubation as well.
In terms of qualification criteria, SEDA accepts all small businesses with a viable idea. However, they do specify that each program and supported incubator has specific vetting processes.
Still, SEDA has a notable departure from the heavy emphasis on BBBEE central to most government small business funding. This greater accessibility is a win for entrepreneurship as a driver of economic development.
Because SEDA assists with loan funding, so an ability to pay back funds is a huge determinant of application success.
SEFA seeks to eliminate poverty and create jobs by fostering the establishment, survival and growth of small businesses. Because businesses face a high mortality rate and limited opportunities for growth, this is a very important mandate.
SEFA has a broad product range, which encompasses survivalist entrepreneurs. Like many government funders, SEFA offers post-funding support for businesses.
Small business funding is provided through a hybrid of wholesale and direct lending channels within the following sectors:
- Services (including retail & wholesale trades and tourism);
- Manufacturing (including agro-processing);
- Agriculture (specifically land reform beneficiaries and contract-farming activities);
- Construction (small construction contractors);
- Mining (specifically small-scale miners); and
- Green industries (renewable energy, waste and recycling management).
Because of this hybrid system, SEFA can also provide small business funding by facilitating lending through your traditional financial intermediaries. This partnership is meant to strengthen sustainable access to regular financing for small businesses.
Because of this, your business can get anywhere between R500.00 to R5 million from SEFA partnerships. As for SEFA direct loans, they range from R50 000.00 to R5 million.
Intermediaries that provide SEFA funding include;
- Commercial banks
- Co-operative financial institutions (CFIs)
- Micro-finance intermediaries (MFIs)
- Retail financial intermediaries (RFIs)
- Strategic partnerships and;
- Structured Finance Solutions (SFSs)
All entrepreneurs with a viable business and business plan are eligible to apply for funding and support.
Business Partners prides itself in giving entrepreneurs individualised innovative financing solutions. They offer flexibility, using proprietary models to offer tailored solutions for your small business.
This deviation from traditional small business funding models makes their products available to small businesses and new entrepreneurs. In addition, they offer non-financial assistance to businesses to make sure you are set up for success.
These include basic mentorship programs and access to resources. Mentorship is provided by a curated network of industry leaders, putting the best industry knowledge at your fingertips. Business Partner’s funding products include;
- General finance – Funding for all entrepreneurs who have a viable formal business and who require financing for expansion, working capital, equipment, takeovers, or management buy-outs
- Brands and Franchise Fund – Finance and support for aspiring entrepreneurs to own their own franchise.
- Education SME Fund – Support for businesses in the education and skills transfer sector
- Green Fund – Support for businesses looking to have an environmental impact while contributing to economic growth
- Manufacturing Fund – Commercially sustainable financing and developmental needs support for SMEs in the manufacturing sector
- Property Fund – Up to 110% funding afforded to entrepreneurs looking to purchase premises for their business
- Property Joint Venture Fund – Co-investment with entrepreneurs looking to go into the property space
- Venture Fund – Aimed at high impact entrepreneurs bringing high risk, high innovation projects to life
- Women in Business Fund – A fund aimed at levelling the funding field for female entrepreneurs and increase the number of female-owned viable businesses
These financing solutions are delivered using shareholder loans, equity, royalties and term loans – or any combination of these.
But Before you Apply
Make sure your business is adequately prepared for funding. Always remember that getting funding too early and unprepared can hurt your business. If possible, try bootstrapping your business for a while.
But if you are convinced small business funding is necessary for you to proceed, have a solid plan. Budget and forecast, create a plan for how much you need and what you are going to use it for. Put in place policies for proper financial management and accountability.
The last thing you want is to squander precious funds and not achieve anything, or worse yet, go into debt. Be specific, and avoid estimates where ever possible. Remember you’ll almost always have to pay back these funds, don’t incur unnecessary interest from estimates.
Most importantly, remember we are counting on you to be tomorrow’s employer, so make the most of your funding.
Over to you. What outlet did you turn to when you needed small business funding to bring your vision to life? And don’t forget, this list is always expanding, check back regularly for more options.
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