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.
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.
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.
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.
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:
- Automotive Investment Scheme (AIS)
- Black Business Supplier Development Programme (BBSDP)
- Clothing and Textile Competitiveness Improvement Programme (CTCIP)
- Critical Infrastructure Programme (CIP)
- Film Incentive Programme
- Business Process Services (BPS)
- Capital Projects Feasibility Programme (CPFP)
- Support Programme for Industrial Innovation (SPII)
- National Youth Development Agency (NYDA)
- National Empowerment Fund (NEF)
The Definitive List Of South African Business Incubators For Start-Ups
Are you looking for an incubator to ensure the sustainability of your start-up? This comprehensive list of South African incubators will set you in the right direction.
70-80% of small businesses don’t survive their first year, says Proudly South African CEO, Eustace Mashimbye, with only 9% surviving 10 years. Incubators were developed to reduce the chances of failure of start-ups by offering sustainable and fundamental entrepreneurial support.
Incubators enable entrepreneurs and innovators to find the necessary support and resources to build and maintain a successful start-up. An incubator can offer you:
- A creative space to work out and discuss every aspect of your business
- More resources and experience than you have when starting out
- The opportunity to develop a network of other entrepreneurs and start-ups to sustain your business in the future.
“Getting involved with an incubator requires more than simply filling out an application. You need to get clear about which type of incubator would be the best fit. One of the most damaging mistakes a brand-new company can make is choosing one that doesn’t thoroughly meet its needs,” explains Nav Athwal, founder and CEO of RealtyShares.
Here are 58 South African business incubators for start-ups and what they can offer you:
- Global Cleantech Innovation Programme for SMEs
- Red Bull Amaphiko Academy
- Aurik Business Accelerator
- Transnet Enterprise Development Hub
- The Techstars Foundation
- Anglo’s Zimele
- Shanduka Black Umbrellas
- SEDA Ekurhuleni Base Metals Incubation Programme
- Silulo Business Incubator
- Maxum Business Incubators
- Mpumalanga Stainless Initiative
- Edge Growth
- Timbali Technology Incubator
- New Ventures Studio
- Thomson Reuters Labs
- Seda Automotive Technology Centre
- Meltwater Entrepreneurial School of Technology
- Seda – Agricultural & Mining Tooling Incubator
- Spark* South Africa
- Garden Route ICT Incubator
- The Khayelitsha Bandwidth Barn
- Biofuels Business Incubator
- French Tech
- BioPark Business Incubator
- The Founder Institute
- Seda NMB ICT Incubator
- Tshimologong Precinct
- Softstart BTI
- African Rose
- The Grindstone Accelerator
- Riversands Incubation Hub
- mLab Southern Africa
- South African Renewable Energy Business Incubator
- Enterprise Elevator
- The Cape Innovation and Technology Initiative
- The Awethu Project
- The Creative Counsel incubator programme
- Green Pioneer Accelerator
Investment Support For Black Business
Business development services to improve core competencies, managerial capabilities and competitiveness.
The department of trade and industry’s Black Business Supplier Development Programme is a cost-sharing grant, which offers support to black-owned enterprises in South Africa. The DTI contributes 90% of the cost of a project and the applicant 10%.
The programme aims to fast-track existing SMMEs that exhibit good potential for growth, grow black-owned enterprises by fostering linkages between black SMMEs and corporate and public sector enterprises, complement current affirmative procurement and outsourcing initiatives of corporate and public sector enterprises, and enhance the capacity of grant recipient enterprises to successfully compete for corporate and public sector tenders and outsourcing opportunities.
The business must be majority black-owned (50 plus one share) and have a significant representation of black managers on the management team. The maximum annual turnover is R12 million per annum, and the business must have a trading history of least one year. Businesses can qualify for a grant to the maximum amount of R100 000. The requested amount should not exceed 25% of the entity’s previous year’s turnover.
Applications must include a detailed business plan, financial statements, turnover projections and a tax clearance certificate.
Go to www.dti.gov.za
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