There are plenty of government and private organisations that offer funding for small businesses in South Africa. Most of these funds are meant to support previously disadvantaged South Africans namely black entrepreneurs and women. Below is list of some of these small business funds.
The National Empowerment Fund
The first organisation for small business funding in South Africa on our list is the National Employment Fund (NEF).The NEF is a part of the South African government’s development mandate to encourage black participation in business and entrepreneurship. It’s main objective is to assist black entrepreneurs in achieving funding as well as offering entrepreneurs non-financial support. Currently the National Empowerment fund has approved more than R10 billion rand to black owned businesses. Its four main channels of funding consist of iMbewu Fund, uMnotho Fund, Rural Community Development Fund, Strategic projects, Arts and Culture Venture Capital fund, Tourism transformation fund
iMbewu fund is has been set up to support black entrepreneurs that want to start new businesses as well as existing black-owned enterprises. The Fund offers finance products ranging from R250 000 to R15 million. iMbewu fund offers the following support;
- Entrepreneurship Finance
Enterpreneurship finance is one of the various forms of small business funding under the iMbewu fund. Entrepreneurship finance is aimed at providing start-up and expansion capital to new and existing businesses that are owned and managed by black people in the form of term loans, quasi equity and equity finance.
- Procurement Finance
The second form of funding under iMbewu Fund is Procurement Finance. Procurement finance is meant to assist black-owned SMEs that have been awarded tenders or contracts by public and private sector entities. The product’s main objective is to ensure that qualifying SMEs have the capacity to carry out their contracts. Terms loans, bridging finance, asset finance and revolving facilities are offered to businesses.
- Franchise finance
Franchise finance is another form of funding for small businesses under the iMbewu fund. Franchise finance is aimed 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.
The uMnotho fund is the second small business fund under the National Empowerment fund. The uMnotho fund is meant to improve access to BEE capital and has five forms of funding which are Acquisition finance, New Venture finance, Expansion capital, Capital markets, as well as Liquidity and warehousing. Funding is between R2 million to R50 million.
- Acquisition Capital
The first form of funding under uMnotho fund is the Acquisiton capital.
- New Venture Finance
The new venture finance is another form of small business funding under the uMnotho fund. This fund 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.
- Expansion Capital
Under the NEF, the expansion capital small business fund provides funding of R5 million to R75 million to businesses that are already black-empowered, but seek expansion capital to grow their business.
- Capital Markets
The fourth fund under uMnotho is the Capital Market fund. Companies specifically women led businesses receice investment. Also, this small business fund focuses on businesses that seek to list on the JSE or its junior AltX market. The Umnotho Fund through capital markets also helps listed BEE companies to raise additional capital for expansion.
- Liquidity and warehousing
The last small business fund under uMnotho is the Liquidity and warehousing fund. This fund helps BEE shareholders who need to sell a portion or all of their shares. It 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.
Rural and Community Development Fund
Also under the National Empowerment fund is the rural and community development small business fund. The objective of the Rural and Community Development Fund is providing funding to aspiring rural entrepreneurs.
There are 3 funds under the rural and community development fund which are, acquisition new venture capital and expansion capital.
Designed to cater for rural entrepreneurs and communities that want to buy equity in existing rural and community enterprises.
- New Venture Capital
New Venture Capital small business fund focuses on assisting rural entrepreneurs, co-operatives and communities with equity contribution towards establishment of sustainable new ventures in Agriculture sector such a forestry, tourism, and processing. Small to medium sized new venture projects are eligible and funding is between R1m and R50m.
- Expansion Capital
The expansion capital small business fund is meant to facilitate the involvement and ownership by communities in projects promoting social upliftment of rural and community projects using entities such as co-operatives and private companies.
The strategic projects fund is another small business fund under the NEF established with a mandate to increase the participation of black people in early-stage projects. It seeks to include black participation and inclusion in the South Africa economy. The Strategic projects fund is at the centre of NEF’s investment strategy when it comes to securing the participation of black people in early stage projects or businesses.
Arts and Culture Venture Capital
The arts and culture venture capital fund, also a small business fund under the National Empowerment fund is designed to promote and develop the arts and culture sector by providing affordable loans to start and/or expand small businesses. The Arts and Culture department realises that in order to achieve radical economic transformation, access to funding must not be limited to few businesses. The Funds are meant to assist businesses become self-sustainable and not rely on government for grant funding. Funding is available to businesses in all provinces, where more job opportunities can be created.
Industrial Development Corporation
Among other small business funds there is the Industrial development fund. This fund is available to those who have an existing business or wish to start a new one. The fund finances industrial projects and promotes partnerships between and across industries within South Africa and internationally. The industrial development corporation fund also focuses on diverse expertise to drive growth in priority sectors and takes on higher-risk funding projects. Black-owned and managed businesses along with those with employment equity are the major focus. The fund aims at developing the skills of black employees and business owners, by supporting local, regional, provincial and national government projects. The various sectors that are funded by the IDC fund include, agro-processing & agriculture, chemical products & pharmaceuticals, basic & speciality chemicals and clothing & textiles to name a few.
There are different types of Industrial Development Corporation Funding these funds are as follows
- Development Funds.
These funds are aimed at supporting projects that have high long-term impacts on the economy through growth. Development funds aim to bring projects out of the informal sector and into the economic mainstream.
- Agro-Processing Competitiveness Fund
Also a government fund, this fund provides support and helps businesses achieve increased competitiveness, business growth, job creation and development in the agro-processing and beverages sector.
- Product Process Development Scheme (PPD)
The objective of this fund is to provide financial support to micro and small enterprises where the total assets are below R5 million, annual turnover is less than R13 million, and the business employs less than 50 people. The fund aims to promote innovation and technology development with financial support that way it enables the development of new products and processes.
- Risk Capital Facility Programme
The Risk capital facility programme is aimed at providing risk finance to businesses owned by previously disadvantaged individuals that offer substantial job creation potential.
- Transformation and Entrepreneurship Scheme
This fund supports marginalised groups of South Africans such as women and the disabled. The objective of this fund is to gain access to finance that will help to develop and grow small businesses as start-ups or through expansions or acquisitions. In addition, this type of IDC funding offers mentorship and non-financial support including business planning, training, and mentorship.
- Green Energy Efficiency Fund
The Green Energy Efficiency fund’s objective is at improving energy efficiency and helping South Africa become a low-carbon economy. The fund aim to drive down energy related costs, improve production capacity, operational effectiveness and competitiveness, which can aid in job creation.
The minimum requirements to qualify for funding;
- Compliance with international environmental standards.
- Shareholders/owners are expected to make a financial contribution
- The contribution of historically disadvantaged people under special circumstances may be lowered, in which case the IDC will be prepared to extend finance in excess of the owner’s contribution.
- The project/business must exhibit economic merit in terms of profitability and sustainability.
- The IDC does not re-finance fixed assets since our aim is to expand the industrial base
- For expanding businesses the latest audited and actual financials (signed by the finance director, MD or CEO are required
- An updated business plan focusing on the proposed project/expansion.
- A detailed description of the nature of expansion, its related costs and revenues.
- A business plan.
National Youth Development Agency
The National youth development Agency is a small business Fund that offers grants, mentorship and development programmes for young entrepreneurs. Formal and informal businesses that are in the start-up or development phase of their business can access funding. The fund has provided support to more than 24 000 youths, and more than 20 000 jobs have been created through this fund. The fund provides direct services to youth in the form of information provision, career guidance services, mentorship, skills development and training, entrepreneurial development and support, health awareness programmes and involvement in sports.
In order to qualify for the National Youth Development Agency you should meet the following criteria;
- You should be eighteen years old at the time of application
- Need the grant for business start-up or growth
- You should be between the ages of 18-35 years with necessary skills, experience or with the potential skill appropriate for the enterprise
- You need to be a South African citizen and resident within the borders of South Africa
- You should be involved in the day-to-day operation and management of the business
Small Enterprise Development Agency, (SEDA) Is another small business funding option for entrepreneurs. The agency develops, supports, and promotes small enterprises throughout the country, plus they help ensure their growth and sustainability. The agency provides financial assistance such as loans and guarantees, to South Africa small businesses. They also provide assistance to businesses who want to purchase equipment and for the provision of working capital for small businesses in South Africa.
The technology intervention agency (TIA)
The technology intervention agency (TIA) is another funding option for small businesses. However, this grant is only available to individuals who work with a higher education institution or science councils and seek to commercialise their research. The grant is non-repayable and it is provided to support projects that are run within a higher education institution. The funds range from R100 000 to R650 000.
The department of trade industry and competition (DTIC)
The department of trade industry and competition (DTIC) also provides funding to a number of businesses in various sectors aimed at development. The funding is for the purposes of economic development, black empowerment and to generally support industrial competitiveness in South Africa. Some of their funding schemes include, Automotive Development Scheme (ADS), aimed at the automotive industry, Production Incentive (PI), Critical Infrastructure Programme (CIP) and the Support Programme for Industrial Innovation (SPII) to name a few.
Isivande Woman’s fund (IWF)
Another fund small businesses can consider is the Isivande Women’s Fund. This government fund aims at supporting women’s economic empowerment by supplying them with cost effective, user friendly and responsive, available finance. The fund also offers support services to help improve the success of women owned small businesses. The Isivande’s Women’s Fund it targeted towards businesses that are starting up, expanding, rehabilitating, franchising as well as those that need bridging finance. The objective of the fund is to create self-sustaining black and women owned businesses by offering you primary financial and non-financial support. The fund also provides capital and supports formally registered businesses, that are operated mainly by women as well as businesses that have been in existence and operating for at least six months. The loans that are provided by this fund can range from R30 000 to R2 million.
The criteria for Isivande Woman’s Fund are as follows
- Your business should have been operational for 6 months.
- Your business needs early stage capital for expansions and growth.
- Your business should be 50% plus one share owned and managed by women.
- Your busines must have potential growth and commercial sustainability.
- Your business should have a social impact with employment creation.
Small Enterprise Finance Agency
The small enterprise Finance Agency supports existing small business and new ones with different forms of finance. The different types of SEFA funds include bridging loans, term loans and structured finance.
The small enterprise finance agency offers short-term loans, which include working capital. The types of working capital offered by this fund include stock purchases as well as operating overheads. These loans are offered for only one year.
The term loans offered by the small enterprise finance agency are of a specific amount and have a specified repayment schedule, amount together with an interest rate. This type of funding is normally used to finance assets that have a medium to long-term lifespan, such as machinery, vehicles, office equipment. These term loans can be used to expand small businesses or for acquisitions and this loan has a repayment range of one to five years.
The small enterprise finance agency also offers funding that falls outside the parameters of the term and bridge loans. They provide by a debt facility, which can be repaid over a period of five years and it can be tailored to a person’s unique requirements.
Khula SME Fund
Khula SME fund is another small business fund offered by Khula Enterprise Finance Ltd, it is also a government fund that aims to grow and increase the sustainability of small businesses. The major objectives of the fund are to offer small businesses early-stage and expansion capital, provide early-stage debt funding to small businesses and offer support to small businesses in rural and peri-urban areas. The Khula fund also helps improve the business owners access to finance, grow businesses so they can create new jobs and encourage meaningful economic involvement of black South Africans. The fund’s aim is to foster entrepreneurship for men and women within the small to medium enterprises sector.
The following are the requirements for business seeking to apply for Khula government fund:
- Your business should be a South African SME with a majority share in their company and who are seeking to start and/or grow their company.
- Your business should be a South African SME’s who has a majority share in a business that is based in the rural areas.
Izibulo SME Fund
The Izibulo SME Fund is a partnership between Khula and Metropolitan Life Limited as well as The Median Fund (Pty) Ltd. Its objective is to:
- Provide early-stage funding to SMEs (improve access to finance)
- Provide SMEs with necessary infrastructural support and resources;
- Foster entrepreneurship for men and women in the SME sector
- Reach out to SMEs in far-flung areas of South Africa
- Encourage meaningful economic participation of historically disadvantaged South Africans;
- Invest in equity and debt, loans, loans convertible into shares (ordinary or preference shares)
- Purchase shares (ordinary or preference shares)
- Purchase debentures or convertible debentures (convertible into ordinary or preference shares)
- Purchase warrants, options and other securities of, or relating to portfolio companies
- Provide consulting services, skills facilitation and development to portfolio companies
- Provide working capital, expansion capital, the purchase of capital assets, refinancing of existing debt obligations;
The Black Business Supplier Development Programme (BBSDP)
The Black Business Supplier Development Programme (BBSDP) is another small business fund that offers cost-sharing grants to black-owned businesses to help them improve their competitiveness and sustainability. It is also a government grant but it does not support start-ups. The Black Business Supplier Development Programme only supports the expansions of existing small businesses. The aim of this government fund is to fast-track small and micro-enterprises, encourage links between black-owned businesses, corporates and the public sector and to complement affirmative procurement and outsourcing. This government fund provides black entrepreneurs with a grant to a maximum of R1 million.
In order to qualify for this fund you should meet the following criteria
- Your business should be a CIPC Registered company or corporation
- Your business should have 50.1% black ownership (Black, Indian or Coloured) or more
- Management team should be 50% Black
- Your business should have been trading for at least one year and have financial statements to prove turnover.
- Your business’ annual turnover must be between R250k and R35m per annum
- Valid SARS tax clearance and Vat registered if turnover is greater than R1 000 000.
Incubation Support Programme
The Incubation support programme is designed to create and develop successful enterprises. The support program assists enterprises with the ability to revitalise communities and local economies. If you are a registered business in South Africa, or a higher education institution, or a licensed or registered science council you benefit from this support programme.
This incubation programme is available to applicants who may want to establish their own incubators or want to grow and expand existing ones. The incubator may offer physical or virtual incubation support services. It essential that the incubator is focused on establishing and/or growing enterprises that will graduate to sustainable enterprises.
The incubator may be a:
- Corporate incubator
- A private investor’s incubator
- An academic or research institution incubator in partnership with industry
There are a number of banks that provide funding for small businesses in South Africa. Some of these banks include, Nedbank, Standard Bank, and FirstRand to name a few. However, in order to secure a loan from any of these banks your business has to be viable plus you have to meet certain requirements. Most commercial banks have specialist SME divisions, that provide finance for qualifying entrepreneurs.
Venture Capital (VC)
There are a lot of venture capitalists that provide funding for small businesses in South Africa. The country’s VC sector has grown substantially over the years, with over R1-billion invested in start-ups and early-stage companies. Some of the top venture capitalists include 4Di Capital, a firm that has invested in start-ups such as Snapt, Aerobotics, Lumkani, and LifeQ; Silvertree Holdings, and Kingston Capital, all firms that have invested in a number of successful start-ups in South Africa.
Venture capitalists are more likely to invest funds once the business is established, providing greater profits in return for shares in the business. Sometimes venture capitalists play a role in the company, usually at the board level. After a period of three to seven years, the venture capitalists sells their shares, either to the original owner, or to another investor.
Angel investors are involved in a business at the beginning phase of development, often providing seed capital in the form of smaller funds for a business to operate and grow. There are a number of angel investors in the country that fund small businesses. Often angel investors are entrepreneurs who have a better understanding of the level of risk involved in investing with a business, and so they hardly require most start ups to go through too much paperwork as with a typical business loan. An angel investor also offers capital in exchange for an ownership stake, and this means that you won’t have to repay the investment. Some of the well known angel investors include Ernst Hertzog, Brett Mason, Avi Eyal, Joel Gascoigne, Brett Dawson, Michael Leeman and Lawrence T Levine to name a few.
Business Partners Limited
Another company that provides funding to small businesses is the Business Partners Limited company. This firm is an investment company for small and medium enterprises in South Africa. The company invests between R250 000 and R15 million in small businesses across all sectors, except for farming, on-lending and non-profit organisations. Investment financing is offered for businesses at all stages of development, such as start-ups, expansions, outright purchases, management buy-outs, management buy-ins, franchises, tenders as well as contracts. Business Partners Limited company also manages a number of specialist funds, that provide investment financing for defined-profile entrepreneurs. The firm also has a range of support services for all kind of entrepreneurs. This includes property management consultants, mentors who are allocated according to the company’s needs and access to other expertise required to ensure the success of the small business.