Let’s Get Clarity

Start-ups or Small medium sized enterprises (SMEs) are the backbone of the South African economy as they not only provide employment to millions of struggling households but also contribute towards the government coffers which intend contributes towards providing adequate service delivery to the South African community. However, over the years we have seen a lot of businesses close their doors due to lack of access to funding. This situation has been aggravated by the emergence of the Corona virus pandemic and the widespread lootings in the country.

In this section, we would discuss the funding opportunities available to start-ups or SMEs. It is worth noting that not all funding are available to all SMEs. Always ask yourself the following questions when you come across a specific funding opportunity:

  1. Does my business fall within the designated group (if such criteria is applicable). A good example would be the National Youth Development Agency (NYDA) which supports businesses owned by youths
  2. Is the funding applicable only to specific sectors? For example, while some funding are applicable only to construction companies, others are only applicable to the tourism sector only while others are available to all SMEs or startups.
  3. Does your current revenue based on your latest financial statements qualify you for the funding? For example, some SMEs don’t get access to certain types of funding if they make more than R10million in Annual revenue

Types of Government Funding

There are 3 types of government funding which are worth taking into account when considering the adequacy of one’s funding needs.

  • Equity Funding: Through equity funding, a government agency would acquire a stake in an SME’s business by injecting cash into the business. By acquiring a percentage share in the business of an SME, the government agency would be entitled to partake in decision making of the business, share in the profits of the business and would also be entitled to receive a lump sum amount should it choose to exit the business.
  • Government Grants: Government grants are funding provided by the government to businesses in order to stimulate the economy and create jobs or reduce unemployment. There are 2 types of government grants namely:-
  1. Full grants: Full grants are funding provided by a government Agencies or departments in terms of which they fund the whole capital requirement of an SME. Usually the SME is not required to pay back any amount.
  2. Cost Sharing Grants: With Cost Sharing Grants, the government agency would only fund a percentage of your capital or funding needs / requirements.
  • Government Incentives: Government incentives are like “Cash Backs” which represents money the government gives you back after you have completed a specific activity, project or after the occurrence of an event. A good example of this would be the Employee Tax Incentive scheme (ETI)

We would now discuss the most prominent government funding opportunities available in South Africa.

National Empowerment Fund (NEF)

The NEF was established to facilitate and promote black economic participation within the South African economy through empowering entrepreneurs and developing sustainable businesses. It is mandated to provide both monetary and non-monetary assistance to black owned businesses. It achieves its financial assistance goals by providing funding to businesses in all sectors from between R250000 to R75 million for startups, equity acquisition and expansion purposes. The NEF funding can be accessed through the following types of funds within the NEF:

Women Empowerment Fund (WEF)

The NEF Women Empowerment Fund is aimed at accelerating the provision of funding to businesses owned by black women. The funding starts from R250 000 to R75 million across a range of sectors, for start-ups, expansions and equity acquisition purposes. The Funding can be in the form of a loan in which case the recipient can be given up to 10 years to repay back depending on business category or can be in the form of an equity stake in which the NEF provides funding in exchange for a percentage shareholding in the business. The funding is available to women in all sectors. The following requirements must be demonstrated before the funding can be approved:
a) The business must have a minimum of 51% black female ownership.
b) Operational involvement at the managerial and board levels by black women.
c) Commercial viability of the business case being presented.
d) Compliance with all relevant laws and regulations.
e) Ability of the business to repay WEF funding.
f) The business must demonstrate it would Create jobs.
g) Geographic location of the business is also important with the focus on rural or economically depressed areas encouraged.
h) Possibility of co-funding with private or public sector institutions is encouraged in larger projects.
i) For property transactions, at least 51% of the annual expenditure of the business to be allocated to majority black-owned businesses

NEF-National Empowerment Fund

• iMbewu Fund

The purpose of the iMbewu Fund is to support black entrepreneurs wishing to start new businesses as well support existing black-owned enterprises with expansion capital. The fund achieves its objective through the following 3 types of financing available:

1) Entrepreneurship Finance: This fund is aimed at providing start-up and expansion capital to new and existing businesses respectively that are owned and managed by black people. It Provides funding from R250000 to R15 Million

The Following Criteria Needs to be adhered to:

  • BEE applicants should be actively involved in the day-to-day management of the business
  • Minimum black ownership of 50.1% is a requirement
  • Business and/or industry experience by black entrepreneurs is also considered
  • The NEF reserves the right to oblige applicants to participate in the NEF mentorship programme where there is lack of business and/or Industry experience
  • The business should be able to repay NEF’s investment
  • Funding Instruments include term-loans, shares and other structures with ordinary share characteristics
  • NEF funding is charged at prime linked interest rates
  • Business must have a clear value-add with a sound business case
  • Maximum NEF funding is R10 million
  • The NEF will exit from the investment in 5 to 7 years

2) Procurement Finance : This fund is aimed at at assisting black-owned SMEs that have been awarded tenders or contracts by public and private sector entities by providing them with either terms loans, bridging finance, asset finance or revolving facilities. It Provides funding from R250000 to R15 Million

The Fund bears the following criteria that needs to be taken into account:

  • The term of the loan will match the duration of the contract.
  • NEF funding is generally limited to R10 million
  • There must be active participation by black individuals in the operations of the business
  • Minimum black ownership of 50.1% is required
  • Industry knowledge by management or there must be clear transfer of skills through relevant partnerships
  • Funding instruments include term-loans, bridging finance, asset finance, revolving facilities and debt finance
  • NEF will fund both the acquisition of assets and the working capital requirements of the business
  • NEF funding is charged at prime linked interest rates
  • The NEF reserves the right to oblige applicant to participate in the NEF mentorship programme
  • NEF will support contracts awarded by reputable entities
  • NEF does not generally support subcontracts especially those awarded by agents and entities that have a weak financial position and lacking track record
  • The contract must be commercially viable and generate sufficient profits and cash flow to repay NEF’s loan

3) Franchise Finance : This fund is at entrepreneurs who wish to start their own businesses by buying a franchise linked to a particular brand to reduce risks associated with start-up businesses lacking a track record. It provides funding of between R250000 to R10 Million

Other Important criteria to take into acount includes :

  • The NEF prefers to fund well established franchise concepts
  • Active management involvement by BEE parties is required
  • Minimum BEE shareholding of 50.1% is a requirement
  • NEF funding of franchises is through a loan instrument with the term matching the duration of the franchise license, however, up to a maximum term of 7 years
  • BEE party must have been pre-approved by the franchisor before approaching NEF
  • NEF funding generally limited to R10 million
  • NEF will fund SME; using mainly debt
  • NEF funding is charged at prime linked interest rates
  • The NEF will exit from the investment in 5 to 7 years

• uMnotho Fund

The fund is designed improve access to BEE capital. The fund provides capital to black-owned and managed enterprises, black entrepreneurs who are buying equity shares in established black and white owned enterprises, starting new ventures, expanding existing businesses and BEE businesses that are or wish to be listed on the JSE. The fund achieves its objectives through the following finance type: 

1) Acquisition Finance : This fund is for black investors to acquire a stake in medium to large companies: 

The Fund has the following general criteria:

  • BEE applicants seeking to fund equity purchases of between R2 million and R75 million in existing businesses
  • Focus on medium to large companies
  • Focus on partnerships with existing management teams and other equity investors
  • Minimum BEE ownership of 25.1% post NEF investment
  • Active BEE management participation
  • Active BEE involvement in investee companies
  • BEE Financial contribution determined on case-by-case basis
  • Investment instruments can include a combination of debt, equity and mezzanine finance
  • The NEF reserves the right to oblige applicants to participate in the NEF mentorship programme
  • Typical investment horizon of 4 to 7 years
  • Security to include personal guarantee

2) New Venture Finance: This product provides capital of R5 million to R25 million per project for BEE parties seeking to participate in medium-sized greenfields projects with total funding requests of between R10 million and R200 million.

The Fund has the following general criteria:

  • Minimum 25.1% BEE shareholding
  • Investment instruments can include a combination of debt, equity and mezzanine finance in support of BEE
  • BEE-specific financial contribution assessed on a case-by-case basis
  • NEF exposure to the project generally not to exceed 50% of total project costs
  • Proven management experience within consortium
  • Active BEE involvement in investee companies
  • The NEF investment horizon is 5 to 10 years
  • Security to include personal guarantees

3) Expansion Finance: The NEF will provide funding of R5 million to R75 million to entities that are already black-empowered, but seek expansion capital to grow the business.

The Fund has the following general criteria:

  • Investment instruments can include a combination of debt, equity and mezzanine finance in support of BEE
  • BEE shareholding should be minimum of 50.1%
  • Pricing based on instrument, risk matrix, security package, etc.
  • Typical investment horizon of 4 to 7 years
  • Active BEE involvement in investee companies
  • Security to include personal guarantee and security over business assets

4) Capital Markets Fund : This fund invests in BEE enterprises, particularly those owned by black women, that seek to list on the JSE or its junior AltX market. The Umnotho Fund will also help listed BEE companies to raise additional capital for expansion. All key features are similar to those of the Acquisition Finance product.

5) Liquidity and Warehousing : This product assists BEE shareholders who need to sell a portion or all of their shares (as minority stakes in unlisted firms are hard to sell). Also acquires and temporarily warehouses these shares before on-selling them to new BEE shareholders, and refinances BEE shareholdings where existing financing structures are costly and/or inefficient. All key features are similar to those of the Acquisition Finance product.

• Rural, Township and Community Development Fund

The aim of the Rural, Township and Community Development Fund is to provide funding to aspiring rural entrepreneurs and to facilitate skills transfer and operational involvement by community groups thereby promoting social and economic upliftment in pursuant to the NEF Mandate. The following sectors are funded by the fund: Agro Processing and Manufacturing; Eco-Tourism; Forestry and Fisheries; Commercial Property; Aqua and Marine Culture; Non – Farm Activities (rural based). It provides for Acquisition Finance, New venture capital and Expansion Capital.

The following minimum criteria are required to be achievable:
a) Projects must be financially sustainable
b) BEE applicants should be actively involved in the day-to-day operations of the business
c) Technical partners should be actively involved in the day-to-day operations of the business
d) The NEF will invest using debt, equity and quasi-equity instruments
e) Minimum black ownership of 25.1% is a requirement
f) Joint ventures between black and non-black partners to support skills transfer
g) The business should be able to repay NEF’s investment
h) The business must have a clear value-add with a sustainable business case
i) The NEF will exit from the investment in 5 to 10 years
j) The NEF reserves the right to oblige applicants to participate in the NEF mentorship programme

• Strategic Projects Fund

This fund is aimed at increasing the participation of black people in early-stage projects through Venture-capital fund investing in early-stage projects for the purpose of developing strategic industrial capacity in poverty nodes, in renewable energy, business process outsourcing, tourism, manufacturing, mining and mineral beneficiation, etc.

• Arts and Culture Venture Capital Fund

This fund provides loans of between R250000 to R5million to black companies in the arts and culture industries in music, television and film production, publishing, crafts, design as well as performing arts and cultural tourism. An application must be accompanied by a detailed business plan with financial projections for commercially viable and sustainable business ideas.

• Tourism Transformation Fund

The Tourism Transformation Fund (TTF) is a dedicated capital investment funding mechanism established by the Department of Tourism in collaboration with the National Empowerment Fund (NEF) and focuses specifically on financial support for black entrepreneurs for projects in the tourism sector. The TTF provides a combination of grant funding, debt financing, and equity contributions to facilitate capital investment in the tourism sector by black entrepreneurs. The grant funding portion provided by the Department of Tourism is used to reduce the approved loan finance and/or equity contribution by the NEF and/or other accredited Development Finance Institutions (DFI’s) where commercial viability of the tourism project has been proven. The Department’s grant contribution for approved applications is limited to 50% of the total funding approved and is capped at a maximum of R5 000 000 (Five Million Rand) per beneficiary.

 

Always check the application forms for document requirements for both Existing businesses and start-ups when applying. For more information on how to apply and to access the application forms CLICK HERE

National Youth Development Agency (NYDA)

The NYDA is a South African-based agency established primarily to address challenges faced by South African youths through the provision of Grant Funding to young entrepreneurs aged 18 up to 35 years of age. The NYDA Programme is designed to provide young entrepreneurs with an opportunity to access both financial and non- financial business development support in order to enable them to establish or grow their businesses. The NYDA supports youths with Education and Skills Development. The financial support provided by the NYDA  in the form of Grant Funding are micro-finance grants to young entrepreneurs and youth cooperatives starting from R1 000 to a maximum of R200 000 for any individual or youth cooperative. For agriculture and technology-related projects, the maximum threshold is R250 000. The Grants provided by the NYDA are generally not repayable. It is worth noting that companies with an annual turnover of more than R750000 and co-operatives with a yearly turnover of more than R1million do not generally qualify for the grant.

The NYDA does not provide Grant to the following types of businesses:

  • Tobacco businesses,
  • Businesses that have gambling and alcohol as primary income generators, and
  • Pyramid sales schemes.

The Grant request would be rejected if it is to be used to do the following:

  • To resolve arrears or outstanding SARS liabilities
  • To Finance a Vehicle
  • If an individual has already benefited from another Development Finance Institution to an amount above R500, 000.
  • If the applicant has been convicted of fraud

The grant cannot be used for the following:

  • To pay back an existing business loan
  • To pay a bribe

The Grant can be used for the following:

  • To purchase movable and immovable assets.
  • Bridging finance.
  • Shop renovations.
  • Working capital paid directly to the grantee.
  • Co-funding with legal entities only.

Documents you would need to have handy when applying for the Grant:

  • Company registration certificate
  • Tax clearance
  • 12 Months Budgeting/ Financial Projection
  • Proof of business address
  • Annual Financial Statement
  • Certified Copies of owners IDs
  • Business Plan

To be eligible for the grant, the applicant needs to meet the following criteria

  • Must be a South African citizen or resident and must be a youth (Less than 35 years old)
  • Applicant must be involved in the day-to-day operations of the business.
  • Applicant must be from a previously disadvantaged background, be a start-up or emerging entrepreneur.
  • Applying businesses must be prepared to commit to the two-year NYDA mentorship and voucher programme.

To get started, you would be required to register on the NYDA portal at https://erp.nyda.gov.za/register-youth

For more information Contact the NYDA Call Centre on 087 158 4742

Or visit your nearest NYDA Branch. See website for more details at www.nyda.gov.za

Small Enterprise Finance Agency (SEFA)

Sefa is a government agency that is dedicated to providing financial and non-financial products or services to qualifying SMMEs and cooperatives that are not able to attract commercial credit from banks and in so doing is able to further the development of both new and existing businesses. Sefa was formed in 2012 through the merging of the South African Micro-finance Apex fund, Khula and the small business funding unit from the Industrial Development Corporation (IDC). It offers loans ranging from R50000 to R5 million through a combination of hybrid products some of which are loans only while others are loans plus grants. Because the SEFA is dedicated towards developing SMMEs and cooperatives, the interest rates they charge on loans are generally lower than that of commercial banks. SEFA currently offer funding to the following sectors:

  • Services (including retail and wholesale trades and tourism)
  • Manufacturing (including agro-processing)
  • Agriculture (specifically land reform beneficiaries and contract-farming activities)
  • Construction (small construction contractors)
  • Mining (specifically small scale miners)
  • Green industries (renewable energy, waste and recycling management)

For a full list of the funding opportunities or funding products available at SEFA, their requirements and how to apply for them, visit the website at www.sefa.org.za and go to products. If you have a viable business plan; can demonstrate the suitability of your business; and can define clearly why you need funding, then you are good to go.

Department of Trade, Industry and Competition (DTIC)

The DTIC is a merger between Department of Trade and Industry and the Economic Development Department. It has as its main focus the promotion and regulation of international trade, the promoting of economic development in South Africa, consumer protection and the implementation of commercial law as well as the promoting of Black Economic empowerment. The DTIC currently assist small businesses in South Africa by providing financial support in the form of grants, loans and cost-sharing incentives in order to increase their participation in the economy, increase competition as well as economic opportunities for SMEs. The DTIC supports both new ventures and existing businesses

The DTIC Supports all business sectors of the economy through its different funding and incentive programs. While some funding and incentive programs are available only to specific sectors of the economy, others are available only to specific types of economic activities while others depend on the nature or size of business.

Some of the incentive programs available at the DTIC are:

  • Sector Specific Assistance Scheme (SSAS) : The Sector Specific Project funding is a reimbursable 80:20 cost-sharing grant to provide financial support to export councils, Joint Action Groups and Industry Associations. The Scheme is aims to compensate for costs in respect of the approved activities aimed at the development of South African emerging exporters through events. This incentive provides financial support for physical and digital events participation by qualifying emerging exporters.
  • Agro-Processing Support Scheme (APSS) : The Agro-Processing Support Scheme (APSS) aims to stimulate investment by the South African agro-processing / beneficiation (agri-business) enterprises. The investment should demonstrate that it will achieve some of the following: Increased capacity, employment creation, modernized machinery and equipment, competitiveness and productivity improvement and broadening participation.
  • Black Industrialists Scheme (BIS): The purpose of Black Industrialists program is to leverage the State’s capacity to unlock the industrial potential that exists within black-owned and managed businesses that operate within the South African economy through deliberate, targeted and well-defined financial and non-financial interventions as described in the IPAP and other government policies.
  • Support Programme for Industrial Innovation (SPII): The Support Programme for Industrial Innovation (SPII) is designed to promote technology development in South Africa’s industry, through the provision of financial assistance for the development of innovative products and/or processes. SPII is focussed specifically on the development phase, which begins at the conclusion of basic research and ends at the point when a pre-production prototype has been produced.

For a full list of all the incentives or funding available for small businesses, visit the DTIC website at http://www.thedtic.gov.za/  Once on the website go to the tab that says financial assistance and there you would see all the programs with their descriptions, requirements as well as forms and contact details to apply for them.  It is important that when selecting a scheme to apply for you consider your business sector, activities and needs.

Industrial Development Corporation (IDC)

idc funding

The IDC is a government owned entity that promotes regional development and integration, economic empowerment of communities and growing black industrialists. It achieves this by funding black-owned and empowered companies, black industrialists, women, and youth-owned and empowered enterprises. The IDC funds both start-ups and existing businesses from R1 million up to a maximum of R1 billion per project. Projects must show economic viability and financial sustainability; must fit into the IDC’s mandated sectors; must meet the empowerment limits set by the particular fund; and should not be less that R1-million (You cannot apply for a funding of less than R1million with the IDC). The IDC generally support projects that contributes to Job creation; Developing small and medium enterprises; Developing rural areas and underdeveloped provinces and regions; and Boosting Broad-based Black Economic Empowerment and empowering people who were previously excluded from participating in the economy.

IDC supports businesses in the following sectors/industries:

  • Agro-Processing and Agriculture;
  • Automotive and Transport Equipment;
  • Chemicals, Medical and Industrial Mineral Products
  • Energy;
  • Infrastructure;
  • Machinery, Equipment and Electronics;
  • Media and Audio-Visual;
  • Mining and Metals;
  • Textiles and Wood Products;
  • Tourism and Services

IDC does not support businesses in the following sectors/industries:

  • Gambling;
  • Property Development, including Residential, Office or Commercial Developments;
  • Golf Courses;
  • Acquisition of Game;
  • Student or Long-Term Rental Accommodation; and
  • Stand-Alone Tour Operators and/or Travel Agents.

Before considering applying for any funding from the IDC, make sure you meet the following minimum requirements:

  • You need to have started a new business or running an existing registered business;
  • Your business must be able to create jobs;
  • You need a completed business plan;
  • Your business must exhibit economic merit in terms of profitability sustainability;
  • Reasonable financial contribution from the owner(s)/shareholder(s)/sponsor(s);
  • Security, which may include bonds over fixed and movable assets of the business as well as personal surety and corporate guarantees;
  • Compliance with South African business statutory requirements; and
  • Compliance with international environmental standards.

To find out about all the funding solutions available at the IDC as well as how to apply for the different funds, visit the IDC website at www.idc.co.za and click on the “Funding Solutions” tab at the top.

For the Funding Steps to follow CLICK HERE