This is what property entrepreneur and co-founder of Tenitor Properties, Odilon Nkhasi, discovered as he embarked on his first project in property development. He and his two business partners, one of whom had a corporate banking background, were exploring the idea of getting into the property market and were looking for a starting point. Nkhasi explains that he read about urban renewal in the inner city of Johannesburg and started identifying property in the area that would be suitable for building low income housing.
“Once we identified the property, we thought ‘we need finance now’. Where do we go? Who’s involved in the market?” They found out about the Gauteng Partnership Fund (GPF) and looked at the organisation’s website to see the type of projects it funded and then visited the offices to get some direction on what to do in order to access finance. For any prospective start-up looking for funding, it’s always important to understand the funder that you are approaching. If you don’t know their mandate, you can’t pitch effectively to them.
Presenting the business case
The GPF asked the entrepreneurs to put together a comprehensive business plan which clearly laid out the partners’ expertise, realistic costs for the refurbishment and rentals that could be charged for the building. The plan then had to be presented to the GPF. Nkhasi and his partners met with a GPF loan officer who explained that the organisation operated in the affordable housing sphere and that their business case had to be aligned to that. He also gave them a breakdown of all the basics that needed to be covered.
Nothing built in a day
During the process, the GPF did background checks on the company itself and the business case to make sure the project was viable. The process demanded patience from the entrepreneurs, which is another vital point to remember: you don’t secure funding overnight. If that’s your plan, you already have a problem. According to Nkhasi, the business case was first presented to the GPF in October 2009 and approval was only provided in July 2010.
“We went through about two or three revision and additional information sessions until we got it right. You need a lot of patience while the process is happening. It’s not an overnight thing, it’s a process that takes as long as it takes. You have to hang in there.”
Investing in the business
Between the three partners, they were able to raise R800 000 of their own funds to invest in the project. Investing your own money, says Nkhasi, demonstrates that you really want to make the project work. He explains that the entrepreneurs contributed 2%, and the GPF 28%. The remaining 70% was secured through commercial property financier, TUHF.
Believing in the viability of Tenitor Properties’ first project, the GPF approached TUHF with their business case for additional funding. All money loaned has to be paid back over 20 years, but the payments only start after 12 months of securing the loan to give Tenitor Properties time to complete the renovations and start earning money with the project.
According to Nkhasi, what helped his company access the loans was that their team has the necessary skills to start up and carry a business, as well as the passion and commitment to see it through. “It’s also important to understand the market and what you are getting yourself into. You need to know how it operates, how to do renovations,” he says. Another thing he believes helped was that they all put away some money that could be used as equity. “It helps to put money away, so you should always start with that.”
The investor’s perspective
Boni Muvevi, chief investment officer at the GPF, says the GPF was comfortable with the ability of the three entrepreneurs. “Looking at their backgrounds, we felt they have the financial understanding to see the project through. The project was interesting enough and aligned to our mandate,” he explains.
Muvevi says the GPF does not just look at CVs, they look for entrepreneurial flair, the ability to see a project through to the end and projects that will make financial sense. “Of course there will be gaps as they are just starting out, but it is important that they understood those gaps, and that we could work together to fill them.”
The fact that they were a team of three, all bringing different skills, was a strength Muvevi identified. “Three partners makes it easier for them to grow. They will also encourage each other to remain motivated and see the project to the end.” Another advantage was that between them they had knowledge of the industry and financial understanding. “This is partly why they raised their head above everyone else. Many people don’t know where to start, but these guys had some insight,” he adds.
When looking at the business case, the GPF identifies a number of areas, including whether or not the entrepreneurs understand the market; who their target market is; whether or not it is in line with the GPF’s mandate; whether or not a market analysis has been done; and finally, the backgrounds of the entrepreneurs and the accuracy of their financial projections. Muvevi adds that it is key for the entrepreneurs to invest their own money into the project to show their commitment.
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Public Sector Funding Directory. Click Here to Access
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
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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