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Government Funding

Expansion Funding Options For Your Growing Business

Growth can put an enormous strain on the cash flow of your business. Luckily, there are financing options available to you if you know where to look, enabling you to keep that growth on track.

Darlene Menzies

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One of the first things you notice when your business starts to grow is that your costs shoot up, while your profit doesn’t immediately follow. Growth can put an enormous strain on the cash flow of a company and business owners often make the mistake of financing growth from their cash flow — which is like using your credit card to finance your home renovations.

Doing things this way results in unnecessarily high financing rates and challenging repayment terms, which can also leave you vulnerable to a sudden cash flow crisis without the time required to line up financing.

Financing business expansion requires planning, especially for fast growing companies.

When planning for fund raising, consider applying for sufficient funds to cover the cost of existing debt and the cost of the expansion. When it comes to business expansion funding, the total amount of the finance required will determine which finance options are most suitable.

If your finance requirements are relatively low and your cash flow history is good, consider a term loan or business overdraft to fund your growth while you work on increasing your sales to meet your growth expenses. If your expansion needs include additional equipment or machinery, asset finance is available.

Related: 3 Ways For Social Entrepreneurs To Access Fundraising

However, if your SME is growing rapidly and you want to enter new markets, scale your team or undertake new product development, look at longer term funding solutions. Equity finance is the most common option for this kind of funding requirement and there are also government funds that cater for business expansion.

Government Funding Options

Government lending agencies provide a range of finance options for SMEs to foster growth in high priority sectors, specific geographic areas and to promote economic inclusion for previously disadvantaged people. The finance options include incentivised financing, cost sharing options, equity, loans and grants.

Government has partnered with Finfind, which has an up-to-date database of all the government funding offerings available to SMEs.

If your business profile or funding need matches any of the government funds, Finfind will match you with the offering and provide you with the details of what is required to apply.

Equity Finance

Equity finance refers to the sale of a percentage of ownership in your company in return for business expansion funds. One of the biggest benefits is that these lenders are often prepared to fund businesses that are not currently profitable, but have the potential to generate large returns. As equity funders take more risk than traditional financiers, they expect a higher rate of return on their investment from businesses that can scale into large markets and show highly profitable future returns.

In the SME market, early-stage equity finance is usually provided by venture capital companies (VC), while mid-stage or larger expansion funding requirements for medium size enterprises are provided by private equity funds or bank loans. VCs look for businesses with a strong founder, that have proven product market fit, a team to execute the business plan and a robust business model showing strong future returns. Funding amounts usually vary from R1 million to R20 million.

Related: What Type Of Growth Funding Do You Really Need?

What Funders Want

business-funding

Funding applications require preparation, including a detailed business model that outlines expansion plans and makes a compelling case for investment.

CVs of key staff will be important as well as an organogram that shows the impact of the expansion on your team, detailed projected income and expenses, historical, audited financial statements, bank statements for the business’s bank account/s, tax clearance certificate, and personal statements of assets and liabilities for all owners as well as company and tax registration documentation. Keep an electronic folder with this documentation and update it monthly so that you can access it whenever it is needed.

If the initial funding meetings go well, the potential funder will perform a due diligence where the financials, the business model and its assumptions and projections will be scrutinised. They may interview some customers and your key staff members. Funders are especially interested in the founder and team running the business, as they are responsible for ensuring that the projected growth is realised. They look for experience, deep knowledge of the industry and operational competence.

Resource

Finfind is SA’s leading access to finance solutions for SMEs. This revolutionary online platform links finance seekers with matching lenders, providing easy access to over 200 lenders and over 350 loan options. Finfind is supported by USAID and sponsored by the Department of Small Business Development.

Go to www.finfindeasy.co.za to find the business finance you need. It’s free and easy to use.

Related: The Ups And Downs Of Borrowing From The Bank


Get Funded

  • Do your homework: Each equity fund has a clear investment strategy. Familiarise yourself before engaging.
  • Educate yourself: Get to know the equity finance terminology and what to expect during the various stages of the deal process.
  • Develop an exit strategy: This is a common question and an important issue for funders.
  • Consider alternative funding: Can your expansion be funded with alternative or cheaper sources of finance that do not require giving up shares? Keep in mind, though, that the right investors bring more than money. They provide expertise and access to networks that can expedite your expansion plans.

Lastly, while you don’t always get the luxury of choice, do your best to partner with people you will enjoy working with, it can be a long marriage.

Darlene is a tech innovator and serial entrepreneur. She is the founder of the award winning online accounting software SMEasy as well as Finfind, an online access to finance solution for entrepreneurs recently launched by the Minister of Small Business Development. Darlene won SA Innovation Entrepreneur of the Year Award in 2010 and has also been recognised by Swiss-based Stars Group as a future Global Leader. Darlene believes that technology should play a leading role in the fight against poverty in Africa. She has been invited to speak in Zurich and London on harnessing technology for Social Change. Darlene works alongside Government, Business and Civil Society to address youth unemployment and to develop small businesses in South Africa. Her life motto is “to live an extraordinary life you must resist an ordinary approach”.

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Government Funding

Government Funding & Grants Advice

Government grants and loan programmes have been set up by the government to extend funding to previously disadvantaged South African to foster black economic development.

Entrepreneur

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There is a good deal of Government sponsored non-repayable Grants and Assistance Programs for manufacturing and tourist related businesses as well as innovative R&D product development projects available in South Africa.

A grant is an award of financial assistance in the form of money. The government is one of the best sources for grants. Grants have strict guidelines for applying and using the funds.

Related: Matching Your Pitch to the Funder

Grant funding agencies use grants as a way to accomplish a specific goal that the organisation wants to achieve. If your start-up fits into the right criteria, you may be able to apply for funding through a grant.

The difference between a loan and a grant is that grants do not have to be repaid, but they do require a considerable amount of paperwork. The grantee is required to account for spending the money in the manner specified by the grantor.

Grants funds fit broadly into two different categories – money that is sponsored by the government and money that is sponsored by corporate financial organisations.

Most of these funds have their own specific requirements, and only those businesses that fill specified requirements, get to access to these funds. Funding agencies often look for worthwhile projects such as those that might create jobs in rural areas or those that provide training to specialised groups.

Related: DTI funding guide

Small businesses can contact banks and other financial institutions for small business bank loans. A business loan must be paid back and strict criteria must be met to qualify. There are a number of private funders that may be able to help.

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Government Funding

Government Funding and Grants for Small Businesses

Your much needed capital investment could come from government funding and grants. Here is a comprehensive guide to government funding available in South Africa.

Nicole Crampton

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Many new small businesses go through the struggle of finding capital to start-up of expand their businesses. Government funding and grants can be a worthwhile way to get the funds that you need.

There are a lot of important things you need to be aware of such as: Strict criteria, a lot of paperwork and maybe even a very long wait. It is worth it in the end so have a look and see which government funding and grants you qualify for.

What are government grants?

This is when a project or initiative is awarded government funding for some or all of its financial support. The business grants do not need to be repaid or accrue interest and have strict guidelines for application. Government funding is linked with efforts such as black economic empowerment, job creation and developing the economy.

Here is a list of some of the government grants available for business funding in South Africa:

Contents:

  1. Automotive Investment Scheme (AIS)
  2. Black Business Supplier Development Programme (BBSDP)
  3. Clothing and Textile Competitiveness Improvement Programme (CTCIP)
  4. Critical Infrastructure Programme (CIP)
  5. Film Incentive Programme
  6. Business Process Services (BPS)
  7. Capital Projects Feasibility Programme (CPFP)
  8. Support Programme for Industrial Innovation (SPII)
  9. National Youth Development Agency (NYDA)
  10. National Empowerment Fund (NEF)

The Department of Trade and Industry (DTI)DTI-Logo

DTI business grants are responsible for actively encouraging small businesses. The DTI is actively searching for new business owners, specifically those who will positively affect South Africa’s economy with an emphasis on valuable job creation.

The DTI business grants provide financial support to various economic activities, including manufacturing, business competitiveness, export development, market access and provide a channel for foreign direct investment. The following are some of this department’s latest programmes:


 

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Automotive Investment Scheme (AIS)

automotive-vehicleThis business grant is designed to grow the automotive sector. By investing in new and replacement models and components which will:

  • Increase production volumes
  • Sustain and increase employment
  • Strengthen the automotive value chain

Qualifying for the grant

These types of grants are aimed at:

  • Light motor vehicle manufacturers
    • That either have accomplished or will accomplish, a minimum of 50 000 annual units of production per plant, within a period of three years
  • Component or deemed component manufacturers
    • Which fall under the Original Equipment Manufacturer (OEM) supply chain
  • Light motor vehicle manufacturer supply chains who will reach at least 25% of total entity turnover or R10 million by the end of the first full year of commercial production whether they are situated locally or internationally.

Contact information:

  • Working Hours: Monday – Friday 08h00 until 17h00
  • National callers: 0861 843 384
  • Enquiries can be sent to the following e-mail address: contactus@thedti.gov.za
  • Find more information here.

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Black Business Supplier Development Programme (BBSDP)

african-business-manThe DTI offers non-repayable grants of up to R1 million to ensure your business can boost its competitive edge and its sustainability. The aims of these business grants are to expand existing businesses as well as employ additional people.

Be aware: These business grants do not assist start-ups

The R1 million grants are divided into R800 000 specifically for tools, machinery and equipment. The outstanding R200 000 is then used specifically for business development and training. In order to improve:

  • Business corporate governance
  • Management
  • Marketing
  • Productivity
  • Use of modern technology

6 Points you need to qualify for these grants:

  1. CIPC registered company or cc
  2. 50.1% or more black owned (Black, Indian or Coloured)
  3. Management team is 50% Black
  4. Must have been trading for at least one year and have financial statements to prove turnover
  5. Turnover must be between R250 000 and R35 million per annum
  6. Must have valid SARS tax clearance and IRT14 SARS document.

Document checklist for these grants:

  • CIPC Company registration documents (proof of ownership and shareholding)
  • Certified ID of all Directors/ members
  • Certified ID of all managers/ staff to be trained (if applicable)
  • Certified financial statements for latest financial year (three years if available)
  • Management accounts for current year
  • Valid SARS tax clearance (with 3 months to expiry or get a new one)
  • VAT registration document (where applicable)
  • IRT 14 document from SARS. (matching turnover as per latest financials)
  • 3 Months bank statements
  • 3 Quotations (comparable) for every intervention
  • Declaration appointing Graphit as the consultant.
  • Company diagnostic questionnaire and application typed on template supplied by Graphit. Please send back as a Word Document
  • Domicilium form
  • Bank confirmation of your 50% contribution (Will you be able to get finance for your 50% or 20% contribution.) (Clear credit record)

Contact information 

Funding-for-Black-Entrepreneurs-Free-EBook


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Clothing and Textile Competitiveness Improvement Programme (CTCIP)

textile-manufacturingThis type of government funding is targeted at the clothing and textile industry. They offer a R200 million grant fund launched this year. The aims of these types of grants are:

  • Stabilise employment
  • Improve overall competitiveness within the clothing, textile, footwear, leather and leather goods manufacturing industries.

To qualify for these types of grants your operational business just need to join a regional cluster recognised by the programme.

Find more information here.


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Critical Infrastructure Programme (CIP)

infrastructure-buildingThese grants are cost sharing grants for projects designed specifically to improve critical infrastructure. These types of grants offer a cash to a maximum of 30% capped at R30 million of the development cost of qualifying infrastructure. The aims of these government funding and grants are to:

  • Lowering business costs and risks which will support competitiveness
  • Provide targeted financial support for physical infrastructure
  • Stimulate upstream and downstream linkages.

Qualifying for the grant

Public sector entities qualify for this particular grant. These include:

  • Municipalities
  • Private investors
  • Companies

Contact Information


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Film Incentive Programme

filming-industryGovernment funding and grants offer various incentives to promote the film production and post-production industry.

The incentives consist of the:

Foreign Film and Television Production and Post-Production

  • To attract foreign-based film productions to shoot on location in South Africa
  • Conduct post-production activities in South Africa

South African Film and Television Production and Co-Production

  • The assistance of local film producers in the production of local content.

The South African Emerging Black Filmmakers

  • To assist local emerging black filmmakers in order for them to grow enough to take on big productions then they can contribute towards employment creation.

Contact Information:

Find more information here.


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Business Process Services (BPS)

young-entrepreneurGovernment funding and grants such as this one was created to attract investments and create employment opportunities through offshore activities. Its secondary objective is to create youth employment opportunities and contributing to the export revenue of the country through offshoring services.

Qualify for these business grants by having:

  • Must be performing BPS activities
  • May be involved in starting a new operation or expanding an existing operation in order to perform BPS activities.
  • By the end of three years from the start of the new project or expansion, must have created at least 50 new offshore jobs
  • Must commence its commercial operations no later than six months from the date on which the BPS incentive grants were approved
  • If in a joint venture arrangement, must have at least one of the parties registered in South Africa as a legal entity
  • The project must employ at least 80% youth
  • Have secured a contract for offshore BPS activities
  • Comply with the B-BBEE requirements
  • Submit an application for the BPS incentive prior to the engagement of qualifying jobs
  • The project must be financially viable
  • Comply with all statutory regulations
  • Be a going concern.

Contact Information:


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Capital Projects Feasibility Programme (CPFP)

exportation-cratesGovernment funding and grants like this one was created as cost-sharing business grants. The objective is that it will contribute to the cost of feasibility studies which will become projects that will boost local exports and stimulate the market for South African capital goods and services.

Business grants that are R8 million cover a maximum of:

  • 50% of the cost of the feasibility study for projects outside Africa
  • 55% of the cost of the feasibility study for projects within Africa

Requirements:

Must be a South African registered legal entity or partners with a South African registered entity.

Studies which have non-financial criteria:

  • New projects, expansion of existing projects and the rehabilitation of existing projects.
  • The programme that is anticipated to emerge from the feasibility study must fulfil the objectives of the programme.
  • The minimum local content should be 50% for goods and 70% for professional services
  • Projects can be situated anywhere in the world ( excluding South Africa)
  • The project must have a satisfactory chance of being declared a success.

Evaluation criteria which are motivational factors, the project must have:

  • A positive impact on developmental aspects like job creation, skills development, linkages with small, medium and micro enterprises etc.
  • A minimum of 10% of the total professional services involved during the feasibility study should be sub-contracted to South African black-owned professionals/entities
  • A clear detailed time period from which the project stemming from the feasibility study will be realised
  • Funding from private and public sector organisations to realise the project.

Contact Information:


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Support Programme for Industrial Innovation (SPII)

manufacturing-sectorThese are business grants which supports the development of new technology in the South African industry. The government funding and grants focuses on the development of new technology in order to reinforce South Africa’s international competitive edge.

Requirements for SPII Support:

  • Development should represent significant advance in technology
  • Development and subsequent production must take place within South Africa
  • Intellectual Property to reside in a South African registered company
  • Participating businesses must be a South African registered enterprises
  • No simultaneous applications from the same company.

Various schemes offered by SPII:

  • The product process development scheme:
    • Provides financial assistance with non-repayable grants to small, very small, micro-enterprises and individuals.
  • The matching scheme:
    • Provides financial assistance with non-repayable grants to all enterprises and individuals.
  • The partnership scheme
    • Provides financial assistance with conditionally repayable grants to all enterprises and individuals
    • The repayment is a levy based on the percentage of sales over a fixed number of years.
    • The levy percentage and repayment period are established

Contact Information

The dti Customer contact centre

  • National callers: 0861 843 384
  • International callers: +27 (12) 394 9500
  • Find more information here.

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National Youth Development Agency (NYDA)

NYDA-logoThese grants programmes are provided to young entrepreneurs as an opportunity to access financial and non-financial business development support. This programme is directed at youth entrepreneurs who are showing potential but are not fully developed yet.

Related: Does the South African government award grants to franchisees?

Young people who would like to access the grants programmes will have to commit to participating in the NYDA mentorship and voucher programme for a minimum of 2 years. The youth business funding ranges from R1000 to R100 000.

Requirements:

  • The applicant must have attained the age of eighteen (18) years at the time of application
  • Require business, start-up or growth funding
  • Are youth (18-35 years) with necessary skills, experience or; with the potential skill appropriate for the enterprise that they conduct or intend to conduct
  • Are South African citizens and are resident within the borders of South Africa
  • Are involved in the day-to-day operation and management of the business
  • Require grants from NYDA of not less than R1, 000.00 and not more than R100, 000.00
  • Require grants from NYDA of not less than R1,000 and not more than R1, 00, 000 within the following thresholds:
    • Threshold 1 – Survivalist business – R1 000 – R10 000
    • Threshold 2 – Start Up – R10 001 – R50 000
    • Threshold 3 – Growth – R50 001 – R100 000.
  • Operate either informally or formally; generally recognised as micro enterprises (e.g. street traders, vendors, emerging enterprises)
  • Have a profit motive and are commercially viable and sustainable
  • Members of entities should comprise 100% South African youth citizen
  • Business are operating within the borders of South Africa
  • Individual entity must have bank account and or a young person must be assisted to open an account
  • For cooperatives they must have or be willing to form a group of minimum 5 persons.

Be aware: If you receive approval of your grants and you are a full time employee, you might be required to resign and provide your grant officer with your proof of resignation

Find more information here.


 

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National Empowerment Fund (NEF)

National-Empowerment-FundGovernment funding and grants like the National Empowerment Fund are targeted at black economic empowerment transactions. Through the provision of financial and non-financial support as well as creating a culture of saving and investing. The NEF is divided into four different types of government funding:

  1. iMbewu fund
    • Designed to as start-up business funding for black entrepreneurs as well as supporting existing black-owned enterprises with expansion capital.
    • The fund offers: debt, quasi-equity and equity finance products with a range from R250 000 to R10 million.
  2. Rural and community development fund
  • Designed to promote sustainable changes in the rural economy. Specifically in social and economic relations as well as supporting the goals of growth and development through financing of sustainable enterprises. This fund has three products:
    1. Acquisition finance
    2. Expansion Capital
  • Project finance
  • These have a range of funding between R1 million and R50 million
  1. uMnotho fund
    • Designed to improve access to BEE capital and offers five products:
      1. Acquisition finance
      2. Project finance
  • Expansion finance
  1. Capital markets fund
  2. Liquidity and warehousing
  • These products give capital to black-owned and managed enterprises and black entrepreneurs who:
    1. Buy equity shares in established black and white owned enterprises
    2. Starting new ventures
  • Expanding existing businesses
  1. BEE businesses that are or want to be listed on the JSE
  1. Strategic Projects fund
    • This is the centre of the NEF’s investment strategy when it comes to acquiring the involvement of black people in early stage projects. Its main function is to provide venture capital finance aimed at developing new and deliberate industrial capacity within planned sectors acknowledged as key drivers of economic growth.

Contact Information

  • Call: 0861 843 633
  • Find more information here.

The application process for government funding and grants takes time and the paper work can be tiresome. But here has never been more substantial government funding available than right now. The government funding has more than doubled from R242.6 million in government grants in 2011/2012 to R646.5 million in 2012/2013.

An additional R437 million was given out in grants to over 31 000 small and micro enterprises by the National Empowerment Fund, the National Youth Development Agency and others. A lot of success can be accomplished with the help of government funding and grants.

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

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Government Funding

South African Government Grants

There’s a pervasive myth that there’s no funding available for businesses. This is not the case – if you meet the criteria there’s government grants available for your business.

Entrepreneur

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South African Government Grants options to choose from

Contents

  • What is a Government Grant?
  • Do you have to repay a Government Grant?
  • List of Government Grants for Business
  • Who can apply for Government Grants for Business?
  • Tips on applying for Government Grants for Business

The South African government is well aware of the importance of developing the economy, creating employment and attracting foreign investment.

To make these goals a reality, there are grants and assistance programmes available from the government and associated organisations that can get your business off the ground and expanding.

What is a Government Grant?

It is an award of funds from the government that does not need to be repaid, does not accrue interest, and has strict guidelines for application.

Grants available from the government usually tie in with its key deliverables such as black economic empowerment, job creation and developing the economy – to name some.

Related: Government Funding and Grants for Small Businesses

Do you have to repay a Government Grant?

Unlike a loan, a grant is an award of money that is non-repayable – meaning there is no obligation by the receiving parties to repay the money received. While the government is one of the best sources of grants, its selection criteria is strict and paperwork intensive, and the receiving business is obligated to spend the funds in a manner specified by the provider.

Most funds available in South Africa have their own specific requirements, so it’s advisable to research each fund carefully to assess their criteria and up your chances of receiving funding.

Related: Government Loans

List of Government Grants for Business

South-African-money

Some South African grants available

The best place to start with researching government grants for business is through the Department of Trade and Industry (DTI). By visiting www.thedti.gov.za, you can explore a number of funding options from grants to incentives and all their qualifying criteria. Some grants available include:

1. Aqua-culture Development and Enhancement  Programme (ADEP)

This programme is available to registered entities involved in primary, secondary and ancillary aquaculture projects for both marine and fresh water. It is approved for new, existing and upgrading entities. See more here.

2. Automotive Investment Scheme (AIS)

This scheme is designed to grow and develop the automotive industry through investment in new and replacement models and components  that will increase production volumes, sustain and increase employment, and strengthen the automotive value chain. See more here.

3. Black Business  Supplier Development Programme (BBSDP) 

This is a cost-sharing grant offered to black-owned businesses to improve their competitiveness and sustainability. It aims to fast-track small and micro-enterprises, foster links between black-owned businesses, corporates and public sector, and to complement affirmative procurement and outsourcing. It provides grants to a maximum of R1 million. See more here.

4. Business Process Services (BPS)

This scheme aims to attract investment and create employment in South Africa through  off-shoring activities. It involves a three-year tax-exempt grant for qualifying businesses. See more here.

5. Capital Projects  Feasibility Programme (CPFP)

The Capital Projects Feasibility Programme is a cost-sharing grant contributing to the cost of feasibility studies for projects that will lead to increased local exports and stimulate the local manufacturing sector. See more here.

6. Critical Infrastructure Programme (CIP)

This is aimed at improving the infrastructure of South Africa. The grant covers a minimum of 10% to a maximum of 30% of total development costs of qualifying infrastructure. See more here.

7. The Co-operative Incentive Scheme (CIS)

This scheme is a 90:10 cost-sharing grant for registered primary cop-operatives of five or more members to improve the viability and competitiveness. See more here.

8. Incubation Support Programme (ISP)

This programme is designed to create and develop successful enterprises with the ability to revitalise communities and local economies. For more information visit this site.

9. The Manufacturing Competitive Enhancement Programme (MCEP)

Provides enhanced manufacturing support to encourage facility upgrades to sustain employment and improve productivity. See more here.

10. Manufacturing Investment Programme (MIP)

This programme is a reimbursable cash grant to local and foreign-owned manufacturers who wish to establish new facilities or expand on existing ones.

11. National Youth Development Agency (NYDA)

While it is moving away from grants for youth and going toward mentorship and development programmes, grants are available for youth entrepreneurs. See more here.

12. People-carrier Automotive Investment Scheme (P-AIS)

This is a cash grant of between 20% and 35% of the value of qualifying investment in productive assets approved by the DTI. See more here.

13. The Sector Specific Assistance Scheme (SSAS)

This scheme is a cost-sharing grant offered on an 80:20 principle and a maximum of R1,5 million is awarded to qualifying businesses. See more here.

14. Support Programme for  Industrial Innovation (SPII)

The Support Programme for Industrial Innovation is aimed to promote technology development in South African industry. Visit their site for more information.

Related: Help With Accessing Enterprise Development Funding

Who can apply for Government Grants for business?

South African Government Grants

South African flag

Because of the number of grants available – and each with its own criteria – you will need to individually research each grant. Generally through, the following will be required:

  • The business needs to be majority black-owned
  • It needs to have a significant representation of black managers (if applicable)
  • Minimum and maximum turnovers vary from grant to grant
  • The business must have a minimum of one year in trading
  • The business must be a registered entity with a tax clearance certificate, Vat number, etc.
  • The business must comply with all regulations such as CIPRO, SARS etc.
  • All owners and major shareholders need a clear credit history.

Related: DTI Funding

Tips on applying for Government Grants for business

government-grant-application

Advice for applying for Government grants

Once you’ve identified a grant applicable to your business and industry, research it thoroughly to determine the qualifying criteria.

Each grant listed on the DTI website has a contact person you can call or email for more information.

When applying, make sure you’ve completed the following checklist:

  1. Completed and signed application form
  2. SARS Tax Clearance Certificate – Original and valid
  3. Detailed business plan
  4. Co-operative resolution (if applicable)
  5. List of directors, shareholders etc. complete with certified copies of IDs and CVs
  6. Copy of business registration certificate
  7. Motivational letter
  8. Bank statements
  9. Projected financial statements for start-up and/or expansion.

When applying for a Government Grant you will need to have a business plan. Here is a free business plan template to get you started.

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