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.
Growthpoint Properties And Department Of Small Business Development Partner On New Enterprise Incubation Programme
Small businesses to benefit from groundbreaking new partnership between The Department of Small Business Development and Property Point, a Growthpoint initiative.
In a landmark partnership for collective economic growth in South Africa, the Department of Small Business Development (DSBD) is joining forces with Property Point, a Growthpoint Properties initiative, to develop more small businesses for South Africa’s property sector.
DSBD has allocated a R5 million grant to Property Point for a one-year small business development programme as part of its Enterprise Incubation Programme (EIP).
First initiative of it’s kind in property
This breakthrough initiative is the first public-private partnership of its kind in the property sector
It will develop 16 small businesses in the property sector of which two-thirds are youth- and woman-owned.
Shawn Theunissen, head of Property Point and head of Corporate Social Responsibility for Growthpoint Properties, says: “Property Point’s objective has always been to contribute to South Africa’s economic growth. Using a best practice model, we have delivered positive results in the property sector for the last decade.”
Partnering with government
“Now, our new partnership with government will escalate our impact on transforming the economy at a crucial time when South Africa is dealing with high employment and low economic growth,” continues Shawn.
President Cyril Rhamaphosa said in his recent State of the Nation speech: “Ultimately, the growth of our economy will be sustained by small businesses, as is the case in many countries. It is our shared responsibility to grow this vital sector of the economy.
We will work with our social partners to build a small business support ecosystem that assists, nourishes and promotes entrepreneurs.”
Property Point has been a driver of transformation and small business growth within the South African property industry in the 10 years since it was founded by Growthpoint in 2008.
Job and growth development opportunities
Already, it has created 2066 jobs and R842 million in procurement opportunities generated for the 130 SMEs that have participated in its two-year incubation programmes. These small businesses have reported 43% growth in revenue.
The partnership with government leverages Property Point’s deep-rooted success in growing competitive small businesses in the property sector over the last 10 years and expands it for bigger impacts on small enterprise development, job creation, economic growth and a more inclusive economy for South Africa.
Related: The Vision to Succeed
The country’s recent budget speech also stressed: “Government must create an enabling environment for small businesses to thrive, as they are an important lever to create jobs and grow the economy inclusively. Work is being done to provide crucial funding to innovative small businesses when they need it most.
Substantial funds available for SMME’s
A fund with an allocation of R2.1 billion over the medium term is being developed between the Departments of Small Businesses, Science and Technology and the National Treasury to benefit small and medium enterprises during the early start-up phase – this is an area that has historically had limited support because of the risks involved.
Another important constraint for small business is lack of market access and barriers to entry. To resolve this, our competition authorities continue to do the necessary and important work of addressing barriers to entry and rooting out anti-competitive behaviour which slows economic growth and dynamism.”
For this unique 16-business intake, Property Point’s programme is powerfully market driven. It will raise the profile of the entrepreneurs and strengthen their competitiveness, with a deep focus on market integration.
The programme aims to create market linkages for these small businesses that will see them included in procurement opportunities in the broader property sector, as well as Growthpoint. It is expected to set new benchmarks for small business integration into private sector supply chains.
Estienne de Klerk, CEO of Growthpoint South Africa, says: “We believe in the principles of social and economic transformation and empowerment on all levels, and we are committed to achieving this.
As a hands-on property owner – we own and manage our buildings – we recognise our unique position to develop small businesses to increase their access to market opportunities. We are proud to contribute to this pioneering public-private partnership designed to deliver on South Africa’s transformation, small business, economic growth and job creation objectives.”
Collaboration throughout sectors to increase sustainability
Property Point also collaborates with like-minded businesses and organisations across the sector to achieve the shared goals of building sustainable, competitive, small businesses and a vibrant culture of entrepreneurship and enterprise growth.
It enjoys a well-established and growing partnership with JSE-listed Attacq Limited. Since 2014, Property Point has tailor-made supplier and enterprise development programmes for Attacq to empower entrepreneurs and link small businesses into Attacq’s supply chain.
Theunissen concludes: “Together, Property Point and its partners in both the public and private sector will continue to make a positive contribution to South Africa’s property sector and play a vital role in stimulating and transforming the economy as a whole.”
New Fund For Small Businesses To Be Developed
Government has allocated R2.1-billion toward the development of small- and medium-sized businesses.
Driven by the Departments of Small Business, Science and Technology and the National Treasury, it was announced during the 2018 budget speech that entrepreneurs could unlocking funding for their businesses through a new funding initiative.
What is the new Fund?
Minister of Small Business Development, Lindiwe Zulu, explains where the fund stands and how it will work:
“The Fund will be operational during 2018/19 financial year but the planned disbursement of the funding will be the beginning of 2019/2020 financial year.”
She says R1 billion has already been transferred to the Department of Small Business Development from the national fiscus.
“The Department of Small Business Development together with National Treasury and Department of Science and Technology are working with the Government Technical Advisory Centre (GTAC) to develop the architecture of the Fund where issues around the management of the Fund will be considered,” she explains.
Who will the Fund be for?
“The Fund is targeting high growth businesses as our research on the ecosystem shows that there is a lack of funding of enterprises that are at an ideation and early start-up phase,” Zulu explains.
Her department together with the other participating arms of government, will identify areas of collaboration across research, mentorship and training of enterprises on financial management.
“The work that is being undertaken now will assist government to decide on how the fund will operate, but the government is conscious of the economic environment and would not look at setting up a completely new structure that will add to operational costs,” she says.
Addressing parliament on the fund, the minister said the financial mandate of the fund will be informed by the exercise that is being conducted through GTAC.
“Government is looking at having this fund as a soft loan which will provide affordable finance to small businesses and the emphasis will be more on ensuring that the Fund is sustainable rather than profit maximisation,” she explains.
How to apply for funding
Contact the following departments if you would like to access a portion of R2.1 billion:
Department of Small Business Development
- Address: 77 Meintjies Street, Sunnyside, Pretoria
- Tel: (+27) 861 843 384
- Email: email@example.com for information on the department and its services.
Department of Science & Technology
- Address: DST Building (Building no. 53) (CSIR South Gate Entrance) Meiring Naude Road, Brummeria
- Tel: (+27) 12 843 6300
- Email: Isaac.Ramovha@dst.gov.za or firstname.lastname@example.org for information and brochures about the department’s scope and funding.
National Treasury (GTAC unit)
- Address: 40 Church Square, Pretoria
- Tel: (+27) 012 315 5944 or (+27) 012 315 5645
- Email: email@example.com for information from the Government Technical Advisory Centre who will manage the small business fund for National Treasury.
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.
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.
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 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 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.
What Funders Want
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.
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.
- 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.
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