Searching for business funding for your SME can be a complicated journey.

But it doesn’t need to be.

In this post, you’ll learn more about the most common ways you can get business funding in South Africa.

Jump to the section to learn more about:

  • How to find COVID-19 business funding
  • How to determine the right type of funding for your business
  • List of common funders

COVID-19 Business Funding

Small businesses across South African took a knock during the COVID-19 pandemic.

Business owners told Statistics South Africa they had:

  • Lower turnover
  • Paused trading
  • Decreased working hours

And, just under 40% said they would turn to the government for funding relief during the pandemic.

And the numbers show there’s been an immense need for business funding:

  • The Department of Small Business Development received more than 30 000 applications for its Debt Relief Scheme. Eventually, 1 497 SMEs received R513 million. In total, there was a shortfall of over R4 billion
  • When applications opened for Johan Rupert’s SME relief package, SMEs submitted 10,000 applications for R2.8 billion. That exceeded the fund’s R1 billion available funding

There are, however, still sector-specific business funds available to SMEs.

And, the Small Enterprise Development Agency (Seda) shared the key COVID-19 funds with us.

Here is an overview of these sector-specific schemes:

  • Small-scale bakeries and confectioneries support scheme: small businesses can apply for equipment finance or working capital
  • Informal and small-scale clothing and textile support scheme: open to seamstresses, designers, art designers, shoemakers, etc. SMEs can use the funding for new business opportunities, courses to improve key skills, and business credit
  • Automotive aftermarkets support: open to all auto mechanics, diesel fitters, panel beaters and spray painters. Funds can be used for working capital
  • Spaza shop support scheme: general dealers and traditional grocery stores in townships and villages

Sibongile Somdaka, marketing and stakeholder relations at Seda, encouraged businesses to register on the government’s COVID-19 SMME Support registration portal to apply for any of these schemes.

“We have been inundated with inquiries from clients who are non–compliant with the online registration platform.

“Because of this non-compliance, many of our clients are missing out on these available opportunities from government,” said Somdaka in a note to Seda offices.

If you want more information, you can now visit the Seda offices. On 14 June, Seda branches opened in some parts of the country.

General business funding

Beyond COVID-19 funding relief, there are hundreds of business funding products available to you.

How to find the right one for your business?

Lucille Bester, the Head of Client Relations at Lulalend, shares advice on the best ways to fund your business.

How do you get funding for a business?

As an SME, you might know about the main ways to get funding.

According to this International Finance Corporation (IFC) study, these were the most popular ways to get business funding in South Africa:

  • Banks
  • Personal savings from investments
  • Business partners
  • Credit card
  • An investor
  • Friends and family
  • Government grant
  • Fintech funder

Before taking a closer look at each option, you need to determine why you need business funding, said Bester.

“Do you need to pay a bill? Do you need funds for a piece of equipment that will generate income in six months?”

Once you have figured out the purpose of the funding, you will be able to answer other questions, like:

“Is this short-term long or long-term funding?”

Determining the purpose of your funding will save you time during the application process.

Many SMEs approach the wrong funders applying for the wrong type of funding product, according to the South African SMME Access to Finance Report.

Examples of types of business-specific funding include:

Businesses also needed funding to start new businesses, according to the report.

Gaining an understanding of the purpose of the funding lets you better plan your cash flow, said, Bester.

“You don’t want a case where you take inventory financing for over 24 months to five years. You’ve sold the inventory and already generated that income. But, you’re still repaying that loan. It doesn’t look good on your balance sheet.”

Paying off a loan for goods that are no longer bringing in revenue has the potential to harm your creditworthiness.

“So, if you have inventory finance over a three-month period, it’s not sitting on your balance sheet after that term. But, if you took funding for a piece of equipment and you bought that equipment, it’s an asset and it’s generating income for you. This looks good on your balance sheet.”

Funders evaluate these factors when they process your business funding application.

“Creditors look at your assets, liabilities, and equity.”

So, before you approach any funders:

  1. Gain clarity on your business needs and goals
  2. Find the business funding product that fits your needs
  3. Determine the criteria
  4. Submit your application

How do I get money to start a business in South Africa?

By now, you can see there are different ways to raise money for your business.

If you need capital early in your business journey, your options might be more limited.

That’s because banks, for instance, would require collateral.

“Banks would give you a reasonable rate but they will ask for collateral. And they’re not going to be quick and easy,” said Bester.

Banks often want longer trading histories, too.

Often, this makes it hard for newer SMEs to secure business funding from banks.

And while friends and family were the top sources of business funding for SMEs in other countries, Bester said SMEs should consider this option carefully. There’s always the risk of complicating your relationships.

Even if you can persuade family and friends to lend you the money to start your business, it’s not that easy in South Africa. Unequal wealth distribution severely restricts this form of finance for most South African SMEs.

Bester said businesses looking for fast, short-term funding should explore alternative funders. With Lulalend, you apply for funding online. If approved, the funds are in your account in 24 hours. And you only need a one-year trading history.

Who funds small businesses in South Africa?

Still unsure about which type of business funding is right for your business?

Here’s a roundup of the common business funders.

Government

Different government departments provide different types of funding. For instance, The Department of Trade and Industry and the Department of Small Business Development provide business funding.

You can get loans, grants, and sector-specific business funding from the government.

Below, is an overview of common government business funds.

SEFA

The Small Enterprise Finance Agency provides a range of business funding products, like asset finance, bridging finance, credit guarantees, and revolving loans.

The agency targets SMEs in the following sectors:

  • Tourism
  • Retail
  • Wholesale trade
  • Manufacturing
  • Agro-processing
  • Agriculture
  • Construction
  • Mining
  • Green industries

Some of the criteria include:

  • South African citizenship or permanent residency
  • Written business plan that meets Sefa’s criteria
  • Collateral

There will be additional criteria depending on the type of business funding. For instance, bridging finance is typically awarded to SMEs that have existing purchase orders.

Sefa might be a good place to start. If they can’t help you business funding, they’ll point you in the right direction.

You can take this quiz to learn more about the right funding for your business.

National Empowerment Fund

The National Empowerment Fund provides funding to black entrepreneurs.

Funds include:

  • Women empowerment fund
  • iMbewu fund
  • uMnotho Fund

For a full list of funds, visit the NEF’s product page.

The criteria for the NEF’s business funding includes that your business must be:

  • 50.1% black-owned
  • Able to create a “reasonable” amount of jobs
  • Able to repay the funding

Industrial Development Corporation

The Industrial Development Corporation (IDC) provides loans, venture capital, and other types of funding.

Focus sectors include:

  • Manufacturing
  • Clothing and textiles
  • Agriculture
  • Tourism
  • Mining

You may be asked for security.

For more, visit the IDC’s site.

Banks

In our business loan guide, we pulled together everything you need to know about applying for business loans.

Common criteria for business funding from banks include:

  • Security
  • Time of operating
  • Credit score
  • Financial documents, like cash flow statements

And if you’re curious about how your credit score affects your application, check out our credit score blog.

Alternative funders

Alternative funders, like Lulalend, offer a fast, easy way to access business finance. Unlike traditional lenders, you don’t need collateral. And, there are no early settlement fees.

Fast, easy business funding

If you want to learn more about accessing fast business online, visit our business funding page.

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