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Funding

What is the difference between a government loan and a government grant and how do I apply for one?

A government grant or loan could be your best option for funding. Make sure you know all there is to know before applying.

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What is Government funding?

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 programmes for manufacturing and tourist related businesses as well as for innovative research and development projects

What is the difference between a Government Grant and a Government Loan in SA?

Government financial aid is available in different forms, but is it is important to understand the difference between government funding and government grants.

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

Government Funding

Government funding is offered in the form of a loan and has to be paid back with interest over a specified period. The government offers loan money to set up a business. It can be short-term or long-term funding. Most applications are assessed on their own merits but preference is given because of gender or to historically disadvantaged South Africans.

Government Loans

Previously disadvantaged South Africans can approach the National Youth Development Agency (NYDA). Its Enterprise Finance arm aims to promote entrepreneurship among young people by providing funding to the youth (18-35 years old) to help them start a new business or grow an existing one.

To achieve this, Enterprise Finance provides finance ranging from R100 000 to R5 million to expand, buy into or buy out existing businesses or start new businesses which allow significant economic benefits to youth.

Loan Applications

Starting a business with 10% – 20% equity

To get your business going you must find the equity that you need. The reason that equity (a deposit) is so important is to ensure your commitment in making the business a success.

Whist this is not the only consideration, a good credit record is essential in order to get funding. It also provides comfort to the financier in respect of creating a reasonable margin of safety, which is essential if the business finds itself in financial difficulty.

No matter what kind of business you start, you must have a business plan. In the plan, you must consider all the costs and include your goals.

Youth loans

How the National Youth Development Agency works in terms of funding?

The National Youth Development Agency is a South African government initiative designed to help and promote youth development. Entrepreneurs 18 – 35 qualify for free business skills training. The business development unit also offers two forms of funding -including Micro-Loans and SME finance.

Micro finance

The NYDA provides micro loans ranging from R1 000 to R100 000 so that entrepreneurs can start a new business or grow an existing one. There are eight different products where the finance is structured according to the amount requests, affordability and the type of finance that is required. These include asset finance, working capital or contract-based finance.

How to apply

To apply, you will need proof of your residential address, ID and you will be required to undergo a credit check. You must also provide an application form and a business plan, and be able to show that your new or existing business will be able to repay the loan. The loan officers at the NYDA branches around the country can assist in completing the application.

SME Funding

Enterprise Finance provides finance ranging from R100 000 to R5 000 000 to expand, buy into or buy out existing businesses or start new businesses. To be eligible for funding you will need to fulfil the following requirements:

  • The applicant must hold greater than 26% of the shares in the company
  • Must be a previously disadvantaged South African youth
  • The youth must be operationally involved in the business
  • Must demonstrate commitment to the venture
  • The venture must be economically viable

How would a student go about financing a business concept?

Working experience of any kind is invaluable when the time comes to start your own business. Even while you are studying, it’s possible to get working experience.

With no working experience it could be difficult, but not impossible to find funding. Before you even think of applying for funding make sure that you have a business plan in place. One of the National Youth Funds biggest aims is to promote entrepreneurship among young people and it provides funding to the youth (18-35 years old) and women, so that they can start a new business or grow an existing one. They offer finance ranging from R101 000 to R5 000 000. The loans from the NYF have a repayment period of up to 60 months and their interest is linked to the prime interest rate.

How to find work while studying

Find a business in the field you are interested in and volunteer your services for a period of time. Network with graduates from the University you attend. You can get in contact with them through the University administration office. People who have graduated from the same university will be more inclined to take a chance on you.

Working while you study means:

  • You will gain experience and skills
  • Helps make industry contacts
  • You will be able to get references
  • It’s a good way to find out if that if the business you wish to start is really right for you in the long term.

Who can help you get started?

Hire yourselves a business coach who can help to set priorities and goals and to formulate cost-effective as well as innovative business strategies. The other alternative is to make use of the services of a fund like the NYF which offers a series of modules to help you start your business. The modules explain everything from the basic principles of business to building a great company profile.

Government Grants

Government Grants explained

A grant is an award of financial assistance in the form of money. Grants have strict guidelines for applying and using the funds. 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.

Where can I get government grants?

Qualifying for a grant requires a great deal of staying power.  One can apply for grants in South Africa and there are institutions that assist start-ups with funding and guidance. Government sponsored non-repayable Grants and Assistance Programs for manufacturing; tourist related businesses as well as innovative R&D product development projects are available in South Africa. Qualifying for a grant requires a great deal of staying power to see the long application and administrative process through.

IDC

The IDC is a self-financing, state-owned national development finance institution that provides financing to entrepreneurs and businesses engaged in competitive industries.

Small Enterprise Development Agency (Seda)

Seda focuses business advice and support. They assist Entrepreneurs to gain access to finance and provide business management training to small enterprise owners.

The Eastern Cape Development Corporation

ECDC has six offices across the Eastern Cape: East London, King William’s Town, Port Elizabeth, Queenstown, Mthatha and Butterworth and will be able to help entrepreneurs with regard to accessing grants.

Land Grants

The National Departments of Land Affairs and Housing provides grants and subsidies to buy or develop land.

Department of Trade and Industry

The DTI’s Black Business Supplier Development Programme (BBSDP) is an 80:20 cost-sharing, cash grant incentive scheme for black-owned businesses, with a maximum grant of R100 000. The scheme also provides business development services to help companies improve their skills and become more competitive.

National Advisory Council on Innovation

The services of the NACI include R&D, funding and SMME support.

Innovation fund

The aim of the Innovation Fund is to promote technological innovation and business entrepreneurial ventures through investing in late-stage research and development.

Do franchises qualify for grants?

There are government funds that specialise in franchise finance. Most applications are assessed on their own merits but preference is given because of gender or to historically disadvantaged South Africans.

The Imbewu Franchise Finance

  1. This fund is geared towards franchise finance but there must be a minimum BEE shareholding of 50.1% to qualify.
  2. NEF funding generally limited to R5m.
  3. BEE party to have pre-qualified with franchisor.
  4. The NEF investment horizon is 5 to 7 years.

The IDC Franchise Fund

The IDC is a self-financing, state-owned national development finance institution that provides financing to entrepreneurs and businesses engaged in competitive industries. Finance is made available for the establishment of new outlets, refurbishment of existing outlets and acquisitions by BEE groups. The business must reflect economic merit.

For more information

 

Click on this link, “How to write a comprehensive business plan”, and read Entrepreneur’s guide: How to Write a Business Plan: Step-by-Step Guide.

 

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Company Posts

How Spartan Has Geared Their Business To Help Fund Yours

Spartan doesn’t just fund entrepreneurial businesses, it is an entrepreneurial business. Kumaran Padayachee, CEO, Spartan reveals this is why his team understands SME financing needs and the unique challenges founder-led businesses face.

Spartan

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Historically speaking, entrepreneurs don’t typically have the quantity and quality of collateral needed to secure debt finance. It was this realisation that led Spartan to develop and deliver a solution that would help SMEs to grow their businesses, even though they didn’t always meet the criteria of more traditional lending institutions.

“We understand that many business owners don’t want to go the equity funding route, selling shares in their businesses in exchange for funding. Without the collateral needed to secure debt funding however, this is often the only route available to them,” says Spartan CEO, Kumaran Padayachee.

“We decided to approach things from a different angle. To service this sector, you need to be flexible. The same rules don’t apply as they do for corporates. To achieve this, we’ve assembled a team that really understands SMEs, their inner workings, the finance they need and the terms that will give them the best ROI for the funding they receive — after all, the point of funding is to help your business grow, so ultimately that’s what it needs to achieve.”

Spartan’s offers financing

kumaran-padayachee_spartan

At its core, Spartan finances small businesses (fast-growing companies with R5 million to R10 million annual turnovers) and medium businesses (R10 million to hundreds of million in annual turnover).

Related: Financing That Backs Entrepreneurs

Spartan finances specialised asset finance (tech, software, plant and machinery, office fit out and furniture); working capital finance (bridging finance, medium term loans); and growth finance (expansion, BEE deals, acquisitions).

Working capital in particular is a big portion of what Spartan assists its clients in. “This is project and growth-related finance, and many of the enquiries are for working capital, for which there is a huge need in the SME landscape.”

What finance suits your business?

As a debt funder, Spartan’s team carefully evaluates what the finance will be used for, and if the return is greater than the repayments — in other words, does finance make financial sense for the business?

“There are numerous ways that finance can be applied incorrectly by SMEs,” says Kumaran. “One of the first flags we look for is debtors age. If the industry norm is payment in 30 days, but a business is typically paid by its clients in 60 or 120 days, then we know there is something wrong with their internal processes.

Either the company is too shy to be assertive with clients, or it lacks the capacity or capability to invoice clients and collect cash. Either way, the result is a shortage of cash. Business owners in this situation apply for cash in order to be able to pay the bills, when they should be reviewing their business, pulling one or two levers, and improving their cash flows.”

Growing your business with alternative funding methods

On the other hand, there are many situations where working capital and bridging finance can help a business to grow beyond its own, organic abilities.

“A customer project or contract that requires a new product line or opening a new branch are both positive, expansionary situations. The problem is that there’s a lead time gap. You need to start the project, spend cash to hire people or purchase equipment, build internal capacity, deliver on the project and then the customer only pays you. Working capital and bridging finance allow the entrepreneur to do just that, and the company grows as a result.”

Related: Alternative Finance – Filling The Gap

Bridging finance in particular is high risk and requires a large amount of flexibility, which is why more traditional funding institutions shy away from it. Spartan on the other hand offers revolving bridging loans to customers the team has worked with. “We understand this space, and our aim is to support the entrepreneurs within it,” Kumaran concludes.

Alternative finance solutions

Spartan is an Alternative Finance company  that specialises in financing Small and Mid-sized businesses by providing: Growth Finance (structured finance for expansion); Specialised Asset Finance (equipment/machinery/technology/software/office fit-outs/energy/etc.) and Working Capital Finance (bridging finance & medium term loans).

Bridging Finance

Bridging Finance is available for one to three month terms and is ideal for contract or project-based businesses. It is a solution that assists businesses with solving cash flow issues due to growth-related challenges in their business and is either for a once-off need or for revolving business use.

www.spartan.co.za

Spartan is an Authorised Financial Services Provider 47631 and Registered Credit Provider NCRCP8669. e finance solutions.

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Funding

What do I need to do in order to get a successful crowd funding campaign?

Advice on getting the gold you need for your crowd funding campaign.

Ambassador Tal Edgars

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I recently read through crowd funding and though this might be of benefit to me. What do I need to do in order to get a successful crowd funding campaign?

70 percent of most crowd funding campaigns never reach their funding laid out plan. If you only reach a portion of your desired pledge amount all donated funds are then returned to investors once your campaign date is up. Do your homework and make your campaign count.

To get the best out of your campaign, I would strongly advise you do the following:

  1. Lay out your plan way in advance
  2. Keep a proper and well-articulated business plan
  3. Create a compelling story.
  4. Use the social media and start a social media campaign
  5. Frequently promote your fundraiser, connect and interact
  6. Dish out rewards and incentives
  7. To go viral, go for educative, informative and entertaining videos
  8. Be more than unique and creative as more exposure will translate to more potential pledges
  9. Choose the right crowd funding site for you.
  10. Know and understand your end target audience

 

 

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Funding

Where can I turn when banks are not helping?

Getting bank finance for my restaurant is almost impossible.

David Lewis

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Getting bank finance for my restaurant is almost impossible.  How else can I access the funding that I need?

Most small businesses will experience a cash flow challenge at some point during the next 12 months and raising capital from traditional banks is becoming a real challenge. Conservative lending policies and onerous application processes mean that finance applications can take up to twelve weeks or longer.

Banks require significant securities, which many business owners are unable to meet. In short, banks are making it very tough for small businesses.

The business cash advance

For businesses that accept credit or debit cards as a form of payment for their goods and services (termed merchants), the business cash advance is now available as alternative source of funding.

In simple terms, a business cash advance offers the merchant an upfront advance to buy a discounted amount of future business turnover.  For example, you may be advanced R80,000 for R100,000 of future turnover, so the fees can be easily calculated as R20,000.

The payback is an agreed percentage of your turnover, paid daily until the full amount is paid across.  Payback increases and drops with your business turnover and the smaller daily payments are often easier than monthly fixed instalments.

Quicker turn-around and more accessible

Comparing it to a bank loan, the business cash advance is more accessible, operates over a shorter term and requires no personal security.  It is also much faster, typically available within two weeks.

The advance amount is based on historical credit and debit card sales and pay overs are daily.   The costs are fully transparent and there are no penalties for late payments or extended payback.    However, accessibility, flexibility and convenience come at higher cost than traditional bank lending products.

As with any financial product, it is important that the benefits gained from using the money are more than the costs, so it is important to have a good purpose for the funding and carefully consider the available options.

Over the last three years, the business cash advance has becoming more main-stream and this funding is used by business with a relatively high card turnover, such as restaurants, retailers, beauty salons, supermarkets, convenience stores etc.

What to use the advance for

The advance is typically used for a business opportunity, such as expansion, new stock, new equipment, marketing etc.  Alternatively, it also offers through a difficult trading period or to cover an unexpected expense such as equipment failure when the money is needed quickly.

Small businesses are a vital part of the South African economy, contributing over 65% of South Africa’s employment and over 50% of GDP – accessing funding is imperative for these businesses to survive and grow.

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