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.
- Improve partnering with provincial development finance agencies
- 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.
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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