Need funding in 2023 for your SME? Check out this list

Raising capital for a small South African business is quite a daunting experience, writes Dr Thommie Burger from JTB, a leading business plan company. His insights on some of the most notable business funders will help you raise the capital needed to bring your bankable business plan to fruition.

The journey of raising capital is filled with thrills, scares, and many ups and downs. None of that should dishearten you, though, because however difficult the path to finding funding may be, the reward of having a business to call your own is worth every headache and hurdle.

Once you’ve solidified your small business idea and compiled your bankable business plan, the next thing is to raise the capital needed. Despite the SME industry being a big driver of employment, small businesses face many challenges during the start-up phase.

According to the World Bank and International Finance Corporation (IFC), South Africa is ranked 39th in the world for ease of doing business.

This doesn’t bode well for a country that needs to recover from a weak economy, partly due to the Covid-19 pandemic, but, as we enter 2023, mostly due to the critical crisis at Eskom and the corruption in our government. It’s estimated that 50% of small businesses fail within a year of launching, and 70% to 80% are estimated to fail within the first five years.

Now, if you have a rich family member or friend who is just bursting to help you in any way that they can, stop reading this article and go to them right now! But many of us are not blessed with a rich uncle or an unexpected inheritance, so we need to find other ways of financing our small business ventures. Luckily, you can attain the funds in South Africa to become a business owner’s success story.

Start-up and small business funding

Many funders in South Africa have taken it upon themselves to help bridge the funding gap by providing solutions to start-ups and SMEs.

• SERV connects everyday South Africans to various professional business services. One such offering is connecting you with a business lender to raise funds for your small business. SERV only works with reputable, reliable sources. The small fee they charge you for their service is worth it, as you mitigate the chances of working with an untrustworthy lender.
• Lulalend is a private firm aimed at growing South African SMEs. They have flexible repayment options, and with a loan range of R10 000 to R5 million, they are a smart choice for any new business owner.
• iK-Cash Advance: If you are already using an iKhokha card machine and have been trading with it for at least three months, this one is for you. iKhokha offers business cash advances at a flat repayment rate with no compound interest. After going through the application process and agreeing to the terms, your business cash advance will be in your bank account in 24 hours. Repaying an iK-Cash Advance is easy, as you would simply pay a percentage of your future card sales.

Other small business funding entities include Retail Capital, Merchant Capital, Spartan Finance, Pollen Finance, Redtree Capital, DG Capital, Sureswipe, Chester Finance, Keitzman Finance and Bridgement, among others.

Funders and incubators

These businesses are set up to help individuals and companies start and run their businesses. Their services include providing finance as well as support. Some will offer only finance options, such as loans, while others want a stake in the business or a percentage of the profits and a say in managing the business.

Incubators help individuals and businesses grow and offer a range of services from premises to work in, to finance, marketing support and mentoring.

Among the available options are Business Partners, Aurik Business Accelerator, The Innovation Hub, Digital Africa Initiative, Akro, South African Future Trust and GroFin.

Some of South Africa’s largest companies, such as mining companies, banks and telecommunication companies, also run incubators. These may run for a few months or a few years, so it is worth contacting them to find out about any incubator or development programmes.

Angel investors

Angel investors are usually wealthy individuals who loan money to individuals and companies with business ideas they believe will succeed. You may be familiar with some international angel investors from television programmes such as Dragons’ Den and Shark Tank.

They usually want a stake in the business, with many prepared to invest in businesses that have potential but don’t qualify for a bank loan. South Africa has numerous angel investors, such as Jozi Angels. You can also find angel investors on the Investment Network. Remember, you are not limited to getting funding from South Africa only, so you can also investigate international angel networks.

Crowdfunding

South Africans have access to websites offering to crowdfund, from BackaBuddy to Thunda Fund, JumpStarter and Uprise. When registering or accepting offers, always find out if there are any additional costs you need to pay to access platforms, the exact terms and conditions of the finance and support offered, and any fee or commission payable to the platform.

Bank funding for start-up business

If you are starting a small business, you can approach your bank for a business loan. South Africa’s large banks have small business departments with specialist small business consultants to offer advice and review funding applications.

Government funding agencies

No matter how many big corporations choose to invest in the country, the country’s financial sector would crumble without small businesses. The South African government is well aware of this fact and has thus created programmes and campaigns to put money directly in the pockets of small to medium-sized enterprise (SME) owners.

• SEFA: The Small Enterprise Finance Agency (SEFA) has the sole task of helping start-ups and small businesses find the funds required to launch their operations. SEFA will offer you a direct financial solution through several loan options or source one from external vendors. SEFA’s loans start from as little as R500 and go as high as R5 million. The loans are repaid directly to the lender, an important factor for a business sector that is often not part of the traditional banking system. The great thing about SEFA is that they have built many key partnerships and relationships in the financial sector so that you don’t have to go through that arduous task.
• NEF: To rebalance the scale and aid those who were previously disadvantaged, the National Empowerment Fund (NEF) provides financial assistance to primarily black-owned businesses. The NEF strives to build rural communities, and they have a heavy stake in new industry development. Guided by the Industrial Policy Action Plan, the NEF offers loans and funding to start-ups up to R10 million, with higher amounts under some of their other funding programmes, e.g., the Black Industrialist Programme.
• IWF: The Isivande Women’s Fund (IWF) is backed by investors to provide South African women with previously unavailable funding. They source loans for SA women who are business owners, making funding women-owned SMEs much less worrisome.

Other government funding agencies include the department of trade and industry, the Industrial Development Corporation (IDC), Technology Innovation Agency and National Youth Development Agency (NYDA).

Some provincial and local governments and municipalities offer business support, such as the Gauteng Growth and Development Agency (GGDA) and the Western Cape department of economic development and tourism. You can approach your province or metro for support and follow them on social media, as they often announce programmes on these platforms.

You can also approach government departments such as the department of agriculture, land reform and rural development, the department of sports, science, art and culture, or the department of tourism, depending on what’s relevant to your business, as they often have programmes in their sectors. Remember, some of these entities offer small business grants in South Africa.

Venture capital finance

This is where private equity capital is used as seed funding for businesses considered high growth with high potential. You can access a detailed list of venture capital and private equity firms on the South African Venture Capital Association (SAVCA) website. Some funders will provide funds specifically for research and development, while others will help you finance your business, so your product is ready to market.

• For more information contact Dr Thommie Burger, a certified financial modelling and business valuation analyst. WhatsApp +27 79 300 8984 or click here to visit the JTB website.

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