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: firstname.lastname@example.org 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 email@example.com 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: firstname.lastname@example.org for information from the Government Technical Advisory Centre who will manage the small business fund for National Treasury.
You’ve got a great idea or a business that’s ready to bloom and you’re looking for business funds. The government has a number of funds and grants able to assist you in your entrepreneurial venture, so use this guide to find the perfect match for business funding.
South African government funding and grants are focused on providing funding for previously disadvantaged individuals and funding business ventures that can make a difference to the economy. If you feel that you qualify, browse the list below to learn how you can get business funds.
Business funds: where to look
The National Empowerment Fund (NEF) – The aim of this organisation is to support B-BEEE and previously disadvantaged individuals and communities. It offers a number of grants to businesses in different sectors. Visit the website for more information on specific grants.
The Small Enterprise Development Agency (SEDA) – This organisation supports the growth of small businesses. It assists with funding for starting and growing a business, and there is a SEDA branch in every municipality.
The Khula SME Fund – This fund is designed to provide funding for early-stage businesses and those requiring expansion capital.
The Department of Trade and Industry (DTI) – The DTI provides funding to qualifying businesses from a range of sectors. Visit the DTI’s website for a list of supported sectors, qualifying criteria and grants available.
The South African Micro Finance Apex Fund (SAMAF) – This organisation grants micro funds to businesses operating in rural or outer urban areas. It does not lend money directly to the public but through existing institutions within a community.
The National Youth Development Agency (NYDA) – NYDA provides enterprise funds for young entrepreneurs aged between 18 and 35 years old and aims to assist them in starting a business or growing an existing one.
GroFin Africa Fund – A specialist finance company that invests in companies at any stage of their development. GroFin can provide up to $1 million in funding.
Black Business Supplier Development Programme (BBSDP) – This is a cost-sharing grant to black-owned businesses to assist them in improving their competitiveness, profitability and sustainability.
The Industrial Development Corporation (IDC) – Under the IDC, there are multiple funds and grants available offering financial support to start-up businesses needing capital for equipment, working capital and buildings. It also funds business wanting to expand. Visit the website for more detailed information on specific funds and grants.
Isivande Women’s Fund – This is an exclusively women’s fund provided by the DTI to empower women entrepreneurs. With funding, education and training the Fund aims to accelerate women’s economic empowerment with affordable, usable and reliable finance.
SEFA Guide For SMEs
What is SEFA and how can it help your business?
In the past businesses seeking funding were at the mercy of banks, investors or waiting in line for government funding. But as of April 2012, SEFA, the Small Enterprise Finance Agency, launched, providing hope for aspirant entrepreneurs all over the country. Here’s what SEFA does and how.
SEFA is the Small Enterprise Finance Agency established in April 2012 when South African Micro Apex Fund (SAMAF), Khula Enterprise Finance and business activities of the Industrial Development Corporation (IDC) merged.
The purpose of SEFA is to respond to and meet the financial challenges faced by small and start-up businesses by providing and facilitating access to finance.
Related: SEFA Funding
SEFA services are primarily targeted to survivalist, micro, small and medium business enterprises and co-operatives that need development to contribute to the economy and employment.
As of April 2013, SEFA plans to distribute R737 million to more than 15 000 small (but mostly micro) businesses by the end of the 1013/14 financial year – helping to create 18 000 jobs.
The organisation lends small businesses amounts ranging from R500 to R3 million in three main ways: Straight to the business owner, via retail finance intermediaries, and through banks using credit guarantee schemes such as Khula.
History of SEFA
The merger was initially brought to public attention when it was announced by the President in the State of the Nation Address in February 2011; leading to the establishment and launch of SEFA in April 2012.
What sets SEFA apart from its predecessors – SAMAF and Khula – is that where they only fund SMES through banks and other intermediary institutions, SEFA provides cash directly to entrepreneurs wanting to either start a business or expand an existing one.
This is an important breakthrough for small businesses previously denied finance for their business by banks because of inherent default risk.
Mandate of SEFA
The mandate for SEFA is to develop sustainable survivalist, micro, small and medium enterprises and co-operatives with the intention of improving local economies and providing job opportunities.
How SEFA hopes to help SME business in South Africa
Over the next five years (from 2013), it aims to have doubled the number of businesses financed to 34 000 small businesses, doubled lending to R1,6 billion.
Finance will be available to micro, small and medium enterprises and co-operatives through bridging finance, revolving loans, asset finance, working capital and term loans.
The agency also plans to investigate partnering with retail chain stores and government feeding schemes in order to expand more effectively into rural areas; improve pre-loan support programmes in partnership with Small Enterprise Development Agency (SEDA) to improve uptake of its credit guarantee scheme; partnering with provincial development finance agencies; and expand its pilot project in partnership with the SA Institute of Chartered Accountants (SAICA) that trains young graduates how to assist small businesses.
Are you looking for Government Funding? Have a look through our Government Funding guide.
It also plans to roll out another nine branches per year, co-located within SEDA or IDC branch offices.
Any small business with a viable business plan can apply for a loan. SEFA will evaluate the business to determine whether it will be able to afford funding, what it will be able to repay, and over what period of time without negatively impacting cash flow.
Visit www.sefa.org.za for more information.
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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