[UPDATE – 22 June 2020]
One of the biggest challenges entrepreneurs face is securing funding. For many entrepreneurs, the first port of call for capital is banks. But it’s important to remember that banks are not the only viable choice, particularly if you have approached a bank and been turned down. Here are your other options and SME funding ideas:
GOVERNMENT INSTITUTIONS
The government has a huge role to play in supporting and encouraging small to medium enterprises (SMEs) in the country. Not only are small businesses job creators, thereby reducing unemployment but small enterprises are set to be one of the biggest drivers of economic growth.
There are various government institutions offering funding to help with small enterprises including:
- The Department of Trade and Industry’s (DTI) has the Black Business Supplier Development Programme (BBSDP), a cost-sharing grant offered to black-owned small enterprises.
- The National Youth Development Agency (NYDA) has a grant programme providing funding to formal and informal businesses.
- The Small Enterprise Finance Agency (SEFA) offers loans ranging between R50 000 to a maximum of R5 million.
“The government has a big role in supporting and encouraging small to medium enterprises (SMEs) in the country”
Requirements: A good idea is not enough, there are still requirements that applicants need to meet depending on the institution, the most common requirements are:
- Your business still needs to be commercially viable and needs to have a profit motive, meaning it should have a way to make money;
- The company will also need to have been registered for at least a year, and you as the business owner must be willing to join the business on a full-time basis and be involved in its day-to-day running.
- There may also be various age and BEE compliance requirements depending on the institution; the NYDA for example only funds startups with a 51 % majority black shareholding and 50 % of management positions being held by black people and only funds young people between the ages 18 and 35.
Documents you may be asked to produce (as provided by National Youth Development Agency):
- Tax clearance certificate
- National identification card
- Company registration documents
- Latest business/personal bank statements (six months)
- The lease agreement of where you are doing your business
- A loan breakdown of how much you need and what you intend to use it for
- Proof of residence
- One-year financial statements
INVESTMENT COMPANIES
Investment companies will only put money into businesses they believe have the best chance of achieving profitability and yielding large returns. In return, investors will look at long-term capital gains, and revenue sharing or they may treat the investment as a loan or a combination of these.
Requirements: Investment companies will often have stricter requirements and will look at both the viability of the entrepreneur and the enterprise. Most investment companies will assess a startup on the contribution that the entrepreneur may be able to offer which means they will look at personal financials like your personal income, this is to assess the levels of withdrawal you will need to make from the business; your balance sheet, security/collateral available to assess your guarantees.
Documents you may be asked to produce (as information provided by Business Partners Ltd):
- A comprehensive business plan
- Certified copies of company registration, identity documents
- If you are buying a business, a copy of the purchase agreement
- For an existing business, recent signed annual financial statements, up-to-date management accounts – this includes a balance sheet and income statement with projections for the next 12 months
- Cash-flow forecast
- Bank statements for at least three months
CROWDFUNDING
Crowdfunding refers to peer-to-peer funding by individuals or organisations, that is managed through an online platform. The capital is raised to fund anything from a business to a project or even a personal loan.
Requirements: There are currently no set requirements for crowdfunding in South Africa. Every crowdfunding platform has its own set of requirements. In most cases, you will need to have a funding project, a company name and the project goal.
ENTERPRISE AND SUPPLIER DEVELOPMENT (ESD)
In an article by SME South Africa on Enterprise and Supplier Development, it is highlighted that the reality is, that in most instances SMEs cannot adequately compete with larger incumbents due to various limitations.
Being a part of the Right Enterprise and Supplier Development (ESD) Programme, therefore has the potential to be life-changing for an SME.
Requirements: Programmes differ and have their own unique set of requirements. Some common requirements across most programmes are a qualifying B-BBEE rating, a well-defined business plan, a proven financial history, and overall positive performance.
When it comes to Enterprise Development programmes, the requirements for SMEs are generally less stringent. SMEs are typically early-stage or seed-funded and are not necessarily ready to undertake the responsibility of delivering on a large scale.
For Supplier Development programmes, the corporation is looking to bolster its supply chain. Your SME would need to provide a business case as to how you can add value by either diversifying, transforming or increasing the competitiveness of their supply chain.
Enterprise Supplier Development Programmes in South Africa
1. SAB (Manufacturing)
2. Sasol (Energy and Chemicals)
3. Sanlam (Financial Services)
BUSINESS INCUBATORS
Incubators don’t necessarily offer outright funding, but they do provide business support to startups like resources and services such as physical space, coaching and networking connections and most importantly they can help you raise funding from their network of finance institutions.
Some of the most common requirements, apart from a brilliant idea, are working for your business on a full-time basis, a minimum trading period and BEE compliance. Depending on the incubator, there may also be a turnover requirement for your business. The Awethu Project, a Johannesburg-based incubator, doesn’t require a minimum level of education, business experience, or capital.
