Many small businesses face the challenge of gathering capital to start and/or expand their businesses.
Loans from the government can be a cost-effective means to get the funds you need, but there are important things to consider on the way – such as being prepared for a lot of paperwork, strict selection criteria, and a very long wait.
What is a business government loan?
These are loans tend to offer comparably lower interest rates to financial institutions, and have longer or more flexible repayment terms.
Do you have to repay a government loan?
Yes. Businesses that receive a loan from the government are still required to repay the loan in the same way they would if receiving finance from a bank. The difference is that interest rates are much lower and repayment terms longer or more flexible.
List of government loans for business
- Isivande Women’s Fund is an exclusive women’s fund established by the DTI to accelerate women’s economic empowerment through affordable, usable and responsible finance. For more information visit their site.
- Khula is the government’s agency for small business finance. It operates across both public and private sectors and is dedicated to providing much-needed funding to businesses. It serves as indemnity to financial institutes providing loans to businesses without assets to put up as collateral. Visit their site for more information.
- National Youth Development Agency (NYDA) offers mentorship, development programmes, grants and facilitates funding for youth businesses in South Africa. Visit their site for more information.
Related: Government Funding & Grants
Who can apply for government loans for business?
Each of the loans listed above have their own qualifying criteria.
For Isivande Women’s Fund, applicants need to be:
- At least six months in operation
- Have a >50% women’s share and management
- In need of start-up, expansion or growth capital
- Have growth potential on a commercial scale
- Able to improve social impact in the form of job creation and economic empowerment.
For Khula Fund, applicants need to be:
- Able to provide as much as 10% of the amount they wish to borrow in the form of cash or equipment that can be used in the intended business.
For NYDA, applicants need to be:
- Between the ages of 18 to 35
- Have the necessary skills and experience or potential skills and experience to run a business
- South African citizens
- Involved in the day to day operations of the business
- Growing a business that is commercially sustainable, viable
- Profit motivated.
Related: 4 Funding Sources
Tips on applying for government loans for business
Ask yourself the following questions before approaching organisations for funding. Having these answers ready may help you gain a loan:
- Why do I need funding for my business? Is your business a ‘leaky bucket’ in the form of too-low pricing, expenses too high, inaccurate book-keeping?
- Am I growing too fast? You need to show that you’ve invested in staff and infrastructure to support your further growth.
- Is it the right time for me to borrow? Is the industry in a growth phase or in turmoil? Are the interest rates at banks favourable? Is your business stable?
- How much money do I need? You need to know exactly how much money is needed and what for. Make sure your business plan reflects these needs.
- Can I wait for finance? Whether it’s through a bank or the government, the process is often very slow and frustrating. Be prepared to wait a long time.
- Is my credit record clear? This is essential for any kind of loan, no matter where it comes from.
- Is my business registered and conforms to all regulations? For an existing business, the entity needs to be registered, have a valid tax clearance certificate and a Vat number.
- Can I make repayments? Carefully consider the terms and conditions of the loan to determine whether your business can afford repayments in the specified time-frame, and what the consequences of non-payment will be.