Small to medium enterprises (SMEs) have a vital role to play in South Africa’s economy. For many SMEs, though, the search for finance is an on-going challenge.
Here we provide an overview of some of the funding options available to SMEs in South Africa.
When seeking out funding opportunities for your business, remember that some sources of finance will be more appropriate for your business than others.
The first type of business funding most people think of is debt finance – borrowing from a bank or other financial institution.
However, many South African SMEs don’t meet the minimum requirements for these loans. And with the credit-risk profile of SMEs being high, banks can only risk using a relatively small percentage of their depositors’ money to fund SMEs.
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, by their very nature, barely meet those requirements, since very few of them have been running for a year.
Bank finance is available in three main forms:
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 Africa include Angel Hub Ventures and the Angel Investment Network.
Impact investors invest in companies that are likely to have positive social/environmental and financial returns. Before providing 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.
This is a process where a service provider lends the money owed on billed invoices to a business while they wait for customers to settle the bill. This way, the business can continue to operate and grow while waiting for customers to pay outstanding invoices.
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 crowd-funding platforms are crowdfunding.co.za, open tenders and IDEATE.
Private equity is capital provided by third-party investors. These funders tend to be conservative, and in order to qualify for this finance, a business needs to have a solid financial record, as well as show innovation and rapid growth.
The South African government offers business funding in the form of grants, loans and tenders to support South Africans from previously disadvantaged groups. It is worth noting that government loans come with more lenient repayment terms and lower interest rates than loans from financial institutions.
The South African Department of Trade and Industry (DTI) operates a number of funds to boost business enterprise. These include:
Various industry-specific grants are also available. These include the Support Programme for Industrial Innovation (SPII) for technological industries; the Automotive Investment Scheme (AIS) for the motor industry; and the Aquaculture Development and Enhancement Programme (ADEP) for marine and freshwater operations.
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.
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 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.
Source: Funding Lamma
wordpress theme by initheme.com