Getting government funding for your business
A lot of South African entrepreneurs appear to have an obsession with getting their businesses funded by the government. Seeing that the government, if viewed as an entity, has more money at its disposal than any private investor (angel or venture capital firm) it becomes slightly understandable where this obsession emanates from. As much as people complain about the South African government, it has gone out of its way to provide a good deal of non-repayable grants and assistance programs to help local entrepreneurs start up and grow their businesses (particularly in manufacturing, tourism and IT industries).
Although you do not have to repay grants, there are strict guidelines and speficic requiremnts that must be adhered to when applying for grants.
The iMbewu Fund
This fund was created to support black entrepreneurs who are starting businesses and who have existing businesses. The fund offers investment in the form of loans and equity investment, with the amount offered ranging from R250 000 to R10 Million. In order to be eligible to apply, the applicant must fall under the definition of a black person in accordance to the Broad-Based Black Economic Empowerment Act (African, Coloured, and Indian people who are citizens of South Africa). Additionally, these ‘BBBEE applicants’ must be actively involved in the day to day running of the business.
Ownership of at-least 50.1% of the business must vest upon people who fall under the broad definition of black people. The fund will then consider the level of industry, or experience the black entrepreneur has, and whether the business will have the ability to repay the investment (particularly if the entrepreneur is looking for a loan, the interest of such a loan will be roughly 9.25% per annum). This automatically means that the business model must be commercially viable, to prove this you would have to draw up 5 year financial projections with a monthly breakdown of your projections for the first year. Where the investment is in the form of an equity investment, the fund will generally exit the business between the 5th and the 7th year from the date the investment was made.
Through iMbewe entrepreneurs can also apply for funding to set up preferably an established franchise (for example; Bosch, Shell garage, Cappello, Pick n Pay, Debonairs and Nandos, to name few), this investment will normally be in the form of a loan given to an entrepreneur who has pre-approved by the franchiser to set up a franchise. The loan given to the entrepreneur must be paid up within 7 years.
Upon submission of all the necessary documents the application will then go through a screening process, a due diligence process, legal procedures and a decision will be made upon examination of how the business is evaluated.
(For application queries visit http://www.nefcorp.co.za/ContactbrUs.aspx)
Umnotho Fund
This fund is designed to provide capital to black-owned and managed businesses and black entrepreneurs seeking to buy equity shares in established businesses, to expand their current businesses (or to help them be listed on the JSE) or to start new businesses. The amount offered by this fund ranges from R2 million to R75 million. The requirements for entrepreneurs who want to start new businesses are; i.) There must be a black ownership of at-least 25.1% of the business, ii.) The amount sought after by the entrepreneur from the fund must not exceed 50% of the cost of the total project, iii.) The applicant must be actively involved in the management of the business and s/he must have a proven business/management track record.
For black businesses that want to expand, black ownership of the business must be a minimum of 50.1% and the security offered by the business must include personal guarantees from the applicants. Repayment of investment (if it is a loan) has to be made within 7 years. If, on the other hand, an equity investment is made, the Fund will exit the business between the 4th year and the 7th year from the date upon which the investment was made.
Isivande Women’s Fund (IWF)
The IWF is a fund exclusively for women who want to start business, grow their businesses, set up a franchisee, or resuscitate their existing businesses. The size of the investment ranges from R30 000 to R2 million. The woman/women in question must have a business that has been in operation for at-least 6 months, at-least 51% of the business must be owned and managed by women, the business must have the potential to grow and must be commercially sustainable, the business must create jobs and it must require capital (early stage, growth or expansion capital).
The process involved the submission of an application along with a viable business plan to the Identity Development Fund Managers.
(For more information and to download the necessary application documents please visit http://www.idf.co.za/).
Khula Fund
The Khula Fund was created to cater for the development of small businesses in South Africa. The Khula Fund specifically caters for South African entrepreneurs (preferably black) who hold majority stake in businesses they seek to grow, or who intent to start new businesses. The Khula Fund also caters for South African entrepreneurs situated in rural areas.
(More information available at http://www.khula.org.za)
National Youth Development Agency (NYDA)
This objective of this fund is to provide young entrepreneurs with financial grants to develop and support their businesses. The size of the grant ranges from R 1 000 to a maximum of R 100 000 for any entrepreneur. Grants can be issued to formal and informal businesses in the start-up or developmental stage.
Applicants must be between 18 to 35 years old with the necessary skills and experience or potential of skills for the business and industry in which they wish to operate. The applicants must be South African citizens or must be permanently resident in South Africa. The applicants must be involved in the day to day running of the business and must be prepared to work full-time.
(More information available at http://www.nyda.gov.za/grant/Pages/default.aspx)
Black Business Supplier Development Programme (BBSDP)
The BBSDP is a cost-sharing grant offered to small black-owned entrepreneurs to help them develop the competitiveness and sustainability of their businesses. The maximum size of the grant is R1 million.
(More information available at http://www.gov.za/services/business-incentives/black-business-supplier-development-programme-bbsdp)