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SAB Foundation, in partnership with Lead Impact Capital and the National Treasury’s Jobs Fund, has launched an R88 million Financing for Impact Fund aimed at providing affordable financing to qualified alumni of its South African entrepreneur programmes.
The Impact Fund seeks to mitigate the financing gap that exists in South Africa, especially for small businesses, who often do not have much collateral and are perceived as high risk by the investment community.
“The perceived risk translates into businesses either not qualifying for finance, or when they do, interest rates can often exceed 20%, with some short term cash flow lenders charging interest rates as high as 30%,” explains Bridgit Evans, executive director of the SAB Foundation. “This leads to a high default rate, further discouraging investors from lending into this market, which creates a vicious cycle.”
The Impact Fund is underpinned by grant capital, allowing interest rates to remain affordable between prime minus 2 and prime plus 3. Loan sizes will range from a minimum of R200 000 to a maximum of R10 million, with entrepreneurs needing to provide sufficient documentary proof to support the loan amount applied for.
The financing can be used for asset and equipment financing, growth financing or purchase order and cash flow financing.
To be eligible for financing, candidates must be graduates from the SAB Foundation Tholoana Enterprise Fund, the Tholoana Enterprise Programme, the Social Innovation and Disability Empowerment Awards, and the Social Innovation Fund, looking to grow their businesses and create new employment opportunities.
Entrepreneurs who receive financing must have already spent at least two years mentoring and training with the SAB Foundation, allowing for the use of other metrics to assess the entrepreneur’s character and likelihood of honouring the loan.
“If South Africa truly wants to grow the economy and create jobs, we need to find innovative financial products that do not pass on the high interest rates to SMEs,” says Evans. “Together with Jobs Fund and LEAD Impact Capital, we are testing a model to address this, by mitigating risk in three ways.”
The model seeks to address the key funding gap that affects small and medium-sized enterprises (SMEs) referred to as the “missing middle”, who are generally too small to access funding from traditional financiers and too large to access micro-finance options. Through the Jobs Fund partnership with the SAB Foundation, SMEs will secure the capital and support they need to drive enterprise growth and further job creation.
“These enterprises are important job creators, particularly for young people, women, and those living in rural areas,” says Najwah Allie-Edries, the head of the Jobs Fund. “Through the Jobs Fund partnership with the SAB Foundation, we hope to scale up this initiative and make a meaningful contribution to enterprise growth and job creation.”
With the Financing for Impact Fund, the SAB Foundation and LEAD Impact Capital seek to demonstrate to the South African financial and investment community that small businesses with innovative and impactful business models are investable.
“If we are able to demonstrate that all loans are repaid, we will be able to use this as a model to attract further finance so that entrepreneurs with real growth and job creation potential are not held back by a lack of access to affordable capital,” concludes Evans. “Our aim is to ultimately build a model that can be scaled and replicated by others.”