Small and medium-sized businesses (SMEs) offer financing options that many owners are unaware of, or who are aware but don’t know how to properly utilize.
Grants, company loans and “soft loans,” as well as development programs, are all available to help SMEs. These programs are designed to help SMEs fund operational costs and expansion initiatives, but they also emphasize job creation and protection, as well as training and skills development.
One of the quickest methods to revitalize the economy is to stimulate the SME sector. SMEs make up over 98 percent of South African enterprises, according to a 2020 poll by McKinsey & Company, and employ between 50 and 60 percent of the workforce.
However, running a business requires money, and there is a need to aid and guide SME owners in obtaining additional capital, especially considering the terrible impact of the Covid-19 outbreak during the last two years.
Different requirements in the business value chain – including the breadth of production, staff, and type of the business, among other variables – dictate why these small businesses demand additional cash.
Some – but not all – of the market’s money are assigned to specific crafts, departments in the manufacturing process, and directorship demographics – usually based on age, race, location, and gender.
Here are some samples of available grants and funds, as well as a quick summary of the various funding mechanisms.
1. Financial assistance for equipment. The Small Enterprise Development Agency (SEDA) Technology Program of the Department of Trade and Industry (DTI) provides “financial and non-financial technology support” to small businesses in the form of funding or equipment.
2. Staff education. The DTI’s Black Business Supplier Development Program provides funding to black-owned firms in a cost-sharing arrangement for business skills training.
3. Female directors can benefit from gender-empowerment funding schemes like the Business Partners Women in Business Fund, which aims to increase female entrepreneurs’ access to capital to establish, expand, or buy existing enterprises.
4. The I’M IN Accelerator Fund, which is for black South African women who have founded digital start-ups, is a more focused version of this funding approach. They can apply to be a part of this 10-month acceleration program, which could provide them with up to R1.5 million in pre-seed financing, coaching, marketing help, and follow-on investment. To be eligible, the company must be 51 percent owned by black and female entrepreneurs.
5. The National Empowerment Fund (NEF) is a black economic empowerment driver that invests in minority-owned enterprises.
The DTI funding model is typically segmented based on characteristics such as industry, marketing channels, and/or directorship age. Small enterprises that meet certain criteria can presently apply for the following loans and grants:
1. The Export Marketing and Investment Assistance Scheme (EMIA) aims to boost South Africa’s export market and attract additional foreign direct investment. This is tied to the Sector Specific Assistance Scheme (SSAS), a reimbursable cost-sharing award that assists stakeholders in the South African export market. This program is divided into three parts: Generic Funding, Project Funding, and Project Funding for Emerging Exporters.
2. The Umsobomvu Youth Fund is a government initiative aiming at providing possibilities for South African youth in entrepreneurship and job creation by teaching them critical business skills and assisting them in setting up, expanding, and developing their firms. Umsobomvu is not a loan scheme, but rather a voucher program. Both new and current youth-owned enterprises can benefit from the Voucher Program.
3. The Agro-Processing Support Scheme (APSS) is an R1 billion cost-sharing grant programme targeted at increasing SME agricultural investments. The minimum qualifying investment size, including the cost of improving competitiveness, will be R1 million.
4. The Aquaculture Development and Enhancement Initiative (ADEP) is a cost-sharing program for primary, secondary, and ancillary aquaculture projects (activities in both marine and freshwater).
5. The Support Program for Industrial Invention (SPII) aims to fund technological product innovation and development in South Africa.
6. The Treasury supports the R&D Tax Incentive, which provides a 150 percent deduction for expenditure on eligible scientific or technological Research and Development (R&D) by South African enterprises. The Minister of Finance said in his 2022 Budget Speech that the R&D Incentive is being reviewed, but that it will be extended in its current form through December 31, 2023.
7. The De Beers Fund: A large diamond mining company offers grants to small enterprises in its operational locations on a more localized level. Kimberley and its environs in the Northern Cape, Viljoenskroon and its environs in the Free State, Musina, and the Blouberg Local Municipalities in Limpopo are among them.
8. Tshikululu Social Investments is South Africa’s premier social investment fund manager and advisor, collaborating with investors and other development partners to achieve long-term social impact. Other firms’ CSI funds are managed by this organization.
9. The De Beers Fund, the Rand Merchant Bank Fund, and other funds have been administered by the organization over the years.
10. SA SME Fund: Founded by members of the CEO Initiative as a collaboration between government, labor, and business to address some of the country’s most serious economic concerns – and as a source of support for the SME sector. The SA SME Fund invests in repayable funds that help and develop entrepreneurs with businesses worth less than R100 million.
Financiers: Because they are private entities, these are licensed lenders with their own products and trade terms. The terms must, however, comply with trade standards, such as Fair Practice, which safeguards the borrower’s interests. Private financiers may be a viable alternative to grants and cost-sharing programmes if you require a quick financing. Small business owners can qualify for a variety of loans, depending on their particular needs. The following are some of the repayable lending options for SMEs:
- A company uses purchase order financing to execute an existing order.
- Working capital financing can help a small firm generate much-needed cash flow.
- Bridging finance is a short-term loan that small firms can utilize to cover their working capital needs. Lula-lend, for example, promotes itself as a viable choice if your company requires a loan provider and you require urgent finances of between R10,000 and R5,000,000. The funds can be in your account within days, and payback is spread out over 3 to 12 months.
- Credit cards can be useful for entrepreneurs, but they require discipline due to the higher interest rates and repayment rates.
- Inventory loans might assist your small firm in maintaining adequate inventory levels. It is better suited to small enterprises that sell tangible goods.
Because there are so many different forms of finances, SME owners should engage with financial consultants to make the best decisions for their specific needs, the amount needed, and the best funding arrangement. Don’t miss out; seek expert assistance with grants and take advantage of the opportunities they provide.