Business Funding: An overview of how SME’s can access funding in SA

Business Funding: An overview of how SME’s can access funding in SA

Reading Time: 5 minutes

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.

COVID-19 SME Support: Business Brightspot Listing

COVID-19 SME Support: Business Brightspot Listing

Reading Time: 2 minutes

Small businesses have inspiring stories to share, even during the most difficult times.

In this edition of the Business Brighspot blog, we’re covering three South African SMEs that moved fast to respond during COVID-19.

Kallie Mamba 

About your business

We manufacture superior quality designer furniture at a small scale along with a range of other interior services including curtaining, headboards, carpets & flooring, blinds, and sofas.

How has your business changed during COVID-19?

Due to the pandemic, we had to take a long hard look at our business model. We estimated that our sales this year will fall by 25% – 30% so we started looking at other avenues for income generation. We are currently busy with building an online shop to sell our bespoke furniture to a wider audience. Another was to use our existing machinery, tools, and skills to expand our services so we have opened a dedicated automotive trim & upholstery department.

Contact details:

Carl Sonntag

  • carl@kalliemamba.com
  • www.kalliemamba.com
  • https://www.facebook.com/Kalliemambadesign/

Jones Consulting

About your business

Jones Consulting (Est. 2008) provides tailored health, safety, environmental, quality and emergency management solutions to organisations of all sizes. Our specialisation is in the international standards of ISO 9001:2015, ISO 14001:2015, ISO 45001:2018.

How has your business changed during COVID-19?

We have adjusted all of our client risk assessments to include significant details on biological agents and the management of COVID-19 related incidents. We have also moved a number of training programmes online including our COVID-19 awareness programme.

Contact details:

Philip Jones

  • Info@specialisedsafety.co.za
  • www.specialisedsafety.co.za
  • https://www.facebook.com/JonesConsultingcc

Jakkie Cowdrey

About your business

We import and distribute surgical instruments. We also have the Tender for Waterless Alcohol Hand Rub (Sanitiser) for Western Cape Health Department.

How has your business changed during COVID-19?

Import of surgical instruments was a problem before COVID-19 due to lack of funding and our 25% shareholder in Germany not being able to fund us any longer, however, with COVID-19 the hand sanitiser tender suddenly took off in April 2020, which has prevented us from closing. Blog

Contact details:

Jakkie Cowdrey

  • jakkie@xerussurgical.com
  • www.xerussurgical.com

Want to list your business? Submit your story here

The Business Brightspot blog is part of our Open for Business campaign. This is an initiative to give South African SMEs the tools and information they need to re-open their businesses during COVID-19.

For on the campaign, read this blog post.

COVID-19 SME Support Guide: How to Grow During a Crisis

COVID-19 SME Support Guide: How to Grow During a Crisis

Reading Time: < 1 minute

Are you unsure about how to run your business during COVID-19?

You aren’t alone.

Business owners tell us they’re feeling uncertain about the future.

That’s why we partnered with the National Small Business Chamber (NSBC) to create this Back to Business guide for South African SMEs.

You’ll find a collection of resources that will help you:

  • Develop a COVID-19 workplace plan
  • Boost your cashflow
  • Communicate with staff and customers
  • Market your SME during COVID-19

This guide is part of our Open for Business campaign, an initiative to help get your business again thriving during COVID-19.

For the full guide, click here. 

Open for Business will be supporting your business growth with:

  • Tools to help you assess and forecast your business trajectory
  • Content and guides to upskill and empower you
  • Extra marketing support from our in house team
  • Fast and flexible access to business funding

For more on the Open for Business campaign, read this blog post

Want to increase your marketing? Submit your SME to our Open for Business listing. It’s free and takes only a few minutes. Add your business here.

Still need help getting back to business?

Here are a few Open for Business articles that might help you:

This Young Entrepreneur Will Inspire You to Take the Leap

This Young Entrepreneur Will Inspire You to Take the Leap

Reading Time: 3 minutes

Back in primary school, as her classmates jostled all around her on the playground, Boitumelo Moroe was getting ready to start her first business.

“From a young age, I fully understood the value of money and profit. I was that school girl always finding something to sell, from cupcakes, lemonade to beads.”

But, after matriculating, Moroe stepped away from entrepreneurship and followed a more traditional path: enrolling in university and earning her degree.

Once she graduated, Moroe started working a corporate job.

Up until that moment, Moroe’s career embodied modern, professional success: she had a great position in a big corporate and all the benefits it provided.

But it wasn’t long before she realised she could no longer ignore the yearning to go out on her own.

She was ready to take the leap.

“The desire to set my own limits and to get out of the comfort zone propelled me to be an entrepreneur. Armed with a vision and belief in thyself, I left the glamorous corporate world, and in a flash, I was back at it.”

That’s when Moroe founded ECU Express, an automotive electro-software company.

And she’s never looked back.

ECU Express specialises in the diagnostics, repairs, replacements, and programming of electronic control modules, the on-board computers in cars.

The company solves that universal problem shared by frustrated vehicle owners: finding quality parts at reasonable prices.

“We regard ourselves as the ‘vehicle gurus’—solving complex vehicle problems daily. Our aim is to offer affordable yet quality automotive solutions to our clientele by bridging the gap between expensive brand new products and parts bought from scrapyards, mostly with no guarantee. Our customer base ranges from dealers, workshops, bush mechanics to individuals.”

For Moroe, ECU Express is far more than just a business.

Her work is challenging, rewarding, and unpredictable, and she wouldn’t have it any other way.

“The thrill and challenges that come with being in the automotive software industry are second to none. I enjoy waking up and not knowing what direction my day is going to take. I enjoy being able to get my hands dirty (in a sophisticated way, of course), whilst wearing heels. I enjoy hearing an old lady saying that her car has started after it wasn’t running for eight months. I enjoy keeping abreast of the new developments made in automotive electro-software engineering and breaking new ground.”

Her advice for aspiring young entrepreneurs is simple:

Don’t delay your business dream.

“You are better off initially running with an idea than waiting for the perfect idea. That’s something I sometimes struggle with because of my perfectionist personality.”

She encourages young people to pursue their entrepreneurial ambitions confidently.

Moroe admits this isn’t always easy in a world that frowns upon failure.

“With time and effort, the idea will turn into a good idea; and with continued passion, the good idea will turn into the perfect idea. It is OK to fail and make mistakes because through failure we are simply ‘failing forward’ one step at a time. As an entrepreneur, you need to continuously bulldoze your way in – be loud, be unashamed and grab what’s yours.”

Giving young people the tools they need to become successful entrepreneurs starts at school, said Moroe.

“I am a firm believer that quality education can alleviate poverty in our country and reduce the staggering youth unemployment rate of about 53%. Let’s start with the basics – our educational system should be equipping children with entrepreneurial skills while they’re still at school.”

She thinks of entrepreneurship as a safety net; a set of skills a person can draw on at any time to generate an income for themselves and their families.

“This would mean that should such children, at any point in their lives, find themselves unemployed, they don’t play the pity game but instead know how to use the opportunities around them and turn them into a business idea. The government has done well with the number of youth incubation programs and funding in place but more can always be done.”

Though society celebrates the lifestyles of entrepreneurs, it’s not always easy. But the rewards make it worth it, said Moroe.

“Whenever the going gets tough, I always remind myself how far I have come – from trying to prove my worth in a male-dominated industry and standing out whilst at it, to the sacrifices I’ve had to make – and how much further I am yet to go.”

There might be challenges along the way, but Moroe simply rejected failure as an option a long time ago.

“Once you make a decision to jump into the ocean, you can only stop swimming when you get to the shore—quitting is never an option. You need to soldier on and keep focused on the dream. It is vital for one to continuously reconnect with the vision, which is something I do daily with my morning chants.”

Trevor Gosling, Lulalend CEO and co-founder, said young people had an important role to play in growing the economy and adding jobs.

“Every day we see young people who are going out and changing the world. It’s up to us to give them the support they need to do that. That’s why we’re so proud to back young business owners like Boitumelo.”

COVID-19 SME Support: List Your Small Business for Free Today

COVID-19 SME Support: List Your Small Business for Free Today

Reading Time: 4 minutes

These are difficult times for small business owners.

South African SMEs have taken a knock as the COVID-19 pandemic forced entire industries to shut down.

Now, we’ve always been huge supporters of the SME community.

Small business is important for our economy, and access to funding is their biggest hurdle.

That’s why we’ve been breaking down those barriers for the last five years with speed, tech, and a personal user experience.

We’re grateful to have built up a community of small business owners. And we’re all in this together.

Right now, we know business owners need our support now more than ever.

Open for Business

That’s why we’re on mission to getand keepyou Open for Business.

Open for Business is a drive to help South African businesses navigate the re-opening of their SMEs during COVID-19.

As part of our Open for Business campaign, we’ll be

  • Creating tools to help you assess and forecast your business trajectory
  • Developing content and guides to support you to learn new skills
  • Providing you with extra marketing support from our in-house team

Today, we’re launching this campaign with the first in a series of SME listings and stories from business owners across South Africa.

COVID-19 SME support: Business Listing

We’re sharing our platform with SMEs to help them gain exposure to other South Africans who want to support SMEs.

If you a small business owner, our Business Brightspot Blog gives you the ability to:

The Lulalend blog serves hundreds of thousands of page views each month/attracts thousands of visitors each month.

By linking to your site, we hope to help your site rank higher in Google, so your potential customers can find you during their online search.

We’ll be featuring a select few of these on our blog and others on our Lulalend Facebook page.

Register your business to be listed here

Business Brightspot blog stories

For our launch edition of this series, we’re excited to feature Lara Waters of Get Stuff Done and Jenny Classen of Ngaphaya Y2K10 (‘Beyond 2010’).

Get Stuff Done

About your business

It’s the admin help you need when all the filing and organising is getting completely out of hand. It’s the decluttering you need when you just can’t face those cupboards or that spare room on your own. And it’s the lifestyle management you need when your to-do list is just a headache waiting to happen.

It’s extra help, extra hands, and extra motivation, all designed to help you get stuff done in no time. All with a little sprinkle of fairy dust too.

How has your business changed (if at all) due to COVID-19?

Being on level 3, life is slowly getting back to normal once again.

But what is ‘normal’ anymore?

In the midst of all the madness, we’re still here, still sprinkling fairy dust, and still getting stuff done. It’s been a challenge under all the rules we’ve had to follow, but COVID-19 or no COVID-19, you can’t keep a good fairy down! That’s why we’ve been busy getting a whole lot done, like:

  • Virtual admin: Helping our clients remotely with admin needs like bookkeeping, typing, presentations, and more.
  • Decluttering: Packing up, clearing out, and helping our clients make space in their homes and in their lives.
  • Errands and concierge: Taking care of our clients’ personal and business needs, and giving them time for the more important things in life.
  • HR and recruitment: With our recruitment services back in full effect, we’ll be able to find the perfect candidate for any positions you may have vacant.

As you can see, no matter where you need support, either at home, at the office, or just with life in general, we’ll be there to get stuff done (while adhering to strict hygiene regulations and social distancing too, of course).

Want us to wave a magic wand over your life? Then just visit our website and take a look at our specials and packages, and our new video too. Contact us for a quote and then we’ll get to work, sprinkling fairy dust as we go!

Ngaphaya Y2K10

About your business

Ngaphaya Y2K10 is a Level 1 B-BBEE, 100% Female owned procurement and sourcing company. Our Quality Management System is ISO9001:2015 certified. This means all our systems and processes follow international standards for quality and safety.

Our scalable business model, which focuses on the client’s needs and service levels, has enabled us to grow a sustainable business over the past 11 years.

How has your business changed due to COVID-19?

As a result of COVID-19, we had to pivot our business. This meant expanding our product line and reselling products to affiliates.

We’re now offering a selection of COVID-19 Essentials, and we’re updating our website to sell these products online.

We started by understanding our clients’ needs. Most were focussed on COVID-19 products, like hand sanitizer, thermometers and, empty bottles.

We sell these products at a discounted rate to re-sellers who in turn can meet their client’s needs. So, in this way, we’re helping more SME owners earn an income and feed their families.

At the moment, we’re waiting for authorisation to sell the SARS-COV-2 Rapid Test. We do have a licence from the South African Health Products Regulatory Authority (SAHPRA). I’m open to speaking with people who’d like to work with us to resell these tests once we have got the go-ahead from SAHPRA.

I’ve also looked at internal processes and how we can make these more efficient. We built our own order management system. And have started shifting this technology to the cloud. We hope to launch the app soon and this will allow us to offer this system to other companies.

We’re happy to work with other small business owners. Please contact me on jenny@ngaphayay2k10.com / 083 4634 538 / 021534 0336 / 021534 0906. Or, try celeste@ngaphayay2k10.com / 083 727 7231

Want to reach our community? Submit your story here