If you’re starting a new venture, money is likely to be your greatest requirement. According to South Africa’s Minister of Small Business Development, Lindiwe Zulu, “ 70% to 80% of small businesses fail in their first year and only about half of those who survive, remain in business for the next five years”.
The main reason most start-ups or small ventures fail is a lack of funding.
Fortunately, the South African government, international foundations and local industries have various initiatives in place to support entrepreneurial activity, which is seen as a way to mitigate the country’s high unemployment rate (currently estimated at around 26%).
Finding funding can be tricky, and may depend on the nature of your business.
If you’re researching your options, consider the different types of funds you could try access.
is money you loan from an individual, bank or institution and then need to repay, with interest. This is a common source of funding for start-up operations.
One example of a funding group is The National Empowerment Fund. In the joint sitting of Parliament, February 2014, then President Jacob Zuma said: “The National Empowerment Fund, the Industrial Development Corporation and the Small Enterprise Finance Agency will continue to provide finance to viable black-owned businesses to promote industrialisation.”
Bank finance is available in three main forms:
- overdraft (added to your business account once you have shown a business plan and supplied some form of asset or guarantee)
- debtor finance (for growing businesses that make a certain turnover)
- asset finance (for moveable assets or equipment, such as computers and vehicles).
Asset-based funding, like the funding offered by lamna, involves using a valuable asset as collateral to secure a short-term loan. Once you repay the loan and interest at the agreed rate, the asset is returned to you. Advantages are that you don’t have to have a spotless credit record to secure funding, and the funding can be obtained almost immediately.
Angel investors (or business angels/private investors) are high net-worth individuals willing to supply an amount of funding to ventures they believe are worthwhile or likely to be successful, usually in exchange for ownership equity or convertible debt.
Angel investing is the route that lies between lending from personal contacts, who can usually only offer a few hundred thousand rands, to approaching venture capital companies for significant sums. In South Africa, networks for finding such angels include Angel Hub Ventures and the Angel Investment Network.
Private equity is money pooled from third-party investors, usually for long time frames, is not that easy to come by. Private equity funders are often conservative. Businesses usually have to show innovation and rapid growth and prove they have a good financial track record and skills base.
Impact investors invest in companies that will offer social or environmental, as well as financial, returns. They tend to support social entrepreneurs; entrepreneurs who want to use their business venture to change their communities for the better. An example of an impact investors is Mango Fund.
Venture capital is private equity capital offered to early-stage enterprises, often to those in high-risk, hi-tech industries. It is first-stage financing for companies that show potential for growth. This is ideal for start-ups not yet at a stage where they can apply for a bank or debt loan. In exchange, the venture capital firm usually has certain decision-making powers, as well as an ownership stake. Local examples of angel investors include GroVest Venture Capital Company and Redwood Capital.
Government funding and grants are non-repayable and mostly available to support South Africans from previously disadvantaged groups.
The South African Department of Trade and Industry (DTI) has several funding and grant offerings, including:
- The Isivande Women’s Fund,
“to accelerate women’s economic empowerment through affordable, usable and responsible finance”.
- The Co-operative Incentive Scheme (CIS),
in support of the second economy, is a cost-sharing grant for registered primary co-operatives of five or more people.
- The Incubation Support Programme (ISP)
helps develop successful enterprises aimed at revitalising communities and local and national economies. It supports partnerships between big and small businesses.
- Khula Enterprise Finance Ltd
offers debt funding to SMMEs, or helps them secure bank loans.
- The Small Enterprise Development Agency (SEDA)
is mandated to support small enterprise development through funding, mentoring and more.
Various grants that are industry-specific are also available, such as the Automotive Investment Scheme (AIS) for the motor industry; the Support Programme for Industrial Innovation (SPII) for technological industries; and the Aquaculture Development and Enhancement Programme (ADEP) for marine and freshwater operations.
For more information about using an asset to secure a short-term loan, contact Lamna on 086 111 2866 or simply complete and submit our online application form.
Client borrows R10,000 for 90 days.
Total Cost of Loan
Fixed rates range from 36% to 60% APR and payment options range from minimum 3 to maximum 24 months. Apart from the initiation and monthly fees shown below, the only additional fee is credit life insurance if the borrower does not have this already.