small business funding

Small to medium enterprises (SMEs) have a vital role to play in South Africa’s economy. For many SMEs, though, the search for small business funding in South Africa is an on-going challenge.

For many small businesses, already challenging economic conditions got even tougher with the 2020 and 2021 lockdowns. It’s not necessarily easy to secure funding – but alternatives do exist.

Here we provide an overview of some of the funding options available to SMEs in South Africa, including:

Funding options for South African SMEs

When seeking out funding opportunities for your business, bear in mind that some sources of finance will be more appropriate for your business than others.

Bank finance

The first type of business funding most people think of is debt finance – borrowing from a bank or other financial institution.

Bank finance is available in three main forms:

  • overdraft (added to your business account once you have supplied a business plan and some form of surety)
  • debtor finance (for growing businesses with a certain turnover)
  • asset finance (for the purchase of moveable assets).

Bank loans can be a more affordable type of business funding than some other alternatives.

However, they usually involve a lot of administration and paperwork – and businesses have to meet a long list of minimum criteria to qualify. Many South African SMEs don’t meet the minimum requirements.

Prior to granting a loan, banks consider the credit rating, business records and financial statements of a business to determine whether they will be able to repay the loan.

New economic entrants – businesses that have been running for under a year – may be unable to provide the required records, even if they’re currently profitable.

Asset-based loans

An option for SMEs with valuable assets is an asset-based loan. This type of loan is secured using assets such as equipment, inventory or a vehicle as collateral.

Accordingly, there’s typically no need for credit or financial checks, and funding can be provided almost straight away.

At Lamna, we specialise in providing South African individuals and businesses with secured loans against assets.

Private equity

Private equity is capital provided by third-party investors. These funders tend to be conservative.

To qualify for this finance, a business needs to have a solid financial record, and to demonstrate innovation and rapid growth.

Government funding

The South African Department of Trade and Industry (DTI) operates a number of funds and programmes to boost business enterprise. Among these are:

Other sources of government small business funding in South Africa include:

Invoice factoring

Invoice factoring involves selling some or all of your outstanding invoices to a third party, to improve cash flow. It’s also called debt factoring or accounts receivable factoring.

The company offering the service will keep a percentage of the amounts that clients pay. It may also chase up unpaid invoices.

Disadvantages are that it can be expensive; could harm your customer relationships; and could leave you liable to cover payments if customers fail to pay up what they owe.

Angel investors

Angel investors are typically high net-worth professionals who provide capital in exchange for equity in the business and a return on their investment.

Sometimes angel investors will collectively fund a promising business venture to reduce their individual risk.

This is a viable funding option for promising start-ups that have been in business for around two years and show high potential for success.

Networks for finding such investors in South African include Angel Hub Ventures and the South African Angel Investment Network.

Impact investors

Impact investors invest in companies that are likely to have positive social/environmental and financial returns.

Before providing small business funding, impact investors will consider whether the business can generate a financial return on the investment within a given period, as well as whether it can realise its impact objectives.

Examples of impact investment funds in South Africa are the Acumen Fund and the Mango Fund.

Crowdfunding

Similar to angel investment, crowdfunding involves many individuals pledging varying amounts of money to a business in exchange for equity, interest or other returns.

Businesses seeking this kind of finance will appeal to the public for funds via the internet.

Examples of crowdfunding sites that are popular in South Africa are:

Small business funding from lamna

If you have an asset such as a paid-up vehicle, you can use it to secure an asset-based, short-term loan from Lamna. We also offer loans against commercial property.

We don’t perform credit checks, there are no delays and the process is completely confidential – so it won’t affect your credit rating. For more information, contact us on 086 111 2866 or simply complete and submit our online application form.

Complete our Online Application Form

Illustrative example

Client borrows R10,000 for 90 days.

Loan Amount Repay Terms Monthly Repayment Total Repayment Initiation Fee Monthly Fee
(Interest + Service charge)
APR
R10 000 3 months R568.40 R12 902.20 R1 197 R560 60%

Related posts

APR & Loan repayment period

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.

Renewals

All accounts may be renewed if they are up to date.

Collection

All payments are made via EFT or direct deposits into Lamna’s bank account. There are no debit orders.

Non-payment

Non-payments may result in the matters being escalated.

Illustrative example

Client borrows R10,000 for 90 days.

Loan Amount Repayment Period Monthly Repayment Total Cost of Loan Initiation Fee Monthly Fee
(Interest + Service charge)
APR
R10 000 3 months R568.40 R12 902.20 R1 197 R560 60%