It was while undergoing a BBBEE accreditation process for his marketing company, Leegra, that Lee Grant first hit upon the idea for Innovative Franchise Concepts (IFC). “I realised that so many companies struggle to spend their enterprise development funds, because they don’t have access to suitable beneficiaries and they lack the resources to mentor the development of sustainable small businesses,” he says.
Seeing a Gap
At the same time, he knew that there were thousands of small black-owned start-ups that desperately needed funding to help make their businesses sustainable. “There’s a guy across the road from our offices called Philemon Shusa who’d been running a small food stall from a gazebo, and we’d become friends. It seemed crazy that funds existed to help people like him, but he couldn’t access them and companies couldn’t access him,” says Grant.
Devising the model
He and IFC co-founder Shawn de Bruyn hit upon a solution that would help people like Shusa to grow their small businesses, while helping companies of all sizes to earn BBBEE points for enterprise development (ED).
IFC tailors a range of small business franchise solutions, and matches ED funding up with black entrepreneurs who become franchisees. Funds are channelled and managed independently by NEDA (National Enterprise Development Administrators), a non-profit organisation established for that purpose.
“Thanks to the inspiration provided by Philemon, the first of these franchise brands, Fast Forward Cafe, targets food street vendors,” says De Bruyn. Informal vending stalls are transformed into branded outlets in specially-designed movable units. Each vendor receives two daily deliveries from a distribution centre, courtesy of a driver who in turn owns his own business.
“Fast Forward Cafe vendors benefit from strong infrastructural support, the power of a professionally marketed brand and access to all-important bulk buying power which they can never achieve as independent operators. This, together with a month-long business basics training course that teaches them to manage finances, stock, costing, staff and customers, can turn their businesses around,” says Grant. He’s been piloting the model with Philemon, whose business has seen a significant jump in turnover.
In turn, businesses benefit from being able to invest their ED funds in sustainable small businesses, run by hand-picked beneficiaries, with the back-up support of IFC. They receive monthly progress reports outlining their return on investment. “And because the funds are pooled, no amount of investment is too small. The opportunity applies to large and small business alike,” Grant concludes.
Landing a tender
The model has piqued the interest of the Metropolitan Trading Company (MTC), which recently awarded IFC a tender to help to formalise the street vending sector in the City of Johannesburg and upgrade the city streets in preparation for the 2010 FIFA World Cup.
Grant and De Bruyn are already planning the launch of other franchise concepts that will meet the ED investment needs of a range of industries and sectors. “There are no limits to the opportunities available,” Grant concludes.
For more information call +27 11 781 4502 or +27 83 379 1242, or go to
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.
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.
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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