SMME funding in South Africa

The single biggest hurdle in the early stage of starting a business that most business owners face is access to funding. Whether you have just passed the initial stages of coming up with a viable business idea and putting together a business plan, or if you’ve already had your business up and running and just need extra capital to scale, there are suitable options available for you. Available finance options range from government grants to business loans or venture capital. Here are some of the funding options for SMME’s in South Africa:

Government Funds

The good news is that the government is trying to push entrepreneurship and encourage more South Africans to start businesses that will in turn create jobs and grow the economy. Most funding is targeted towards previously disadvantaged groups to help boost historically disenfranchised individuals. Government funding can come directly or indirectly through various departments and agencies.

National Empowerment Fund (NEF)

The NEF is the government’s effort to encourage black participation in business and entrepreneurship. It is aimed at both male and female youth of disadvantaged groups and provides funding to help them build a sustainable business. The NEF is made up of various funds available on their website. If you’re interested in funding from the NEF, perform a self-assessment using their criteria and apply online.

Industrial Development Corporation Funding (IDC)

The IDC is a key driving force of commercially sustainable business development and innovation. IDC funding is for both new and existing businesses across a diverse range of expertise and takes on higher-risk funding projects. It covers the following sectors: agro-processing and agriculture, chemical products & pharmaceuticals, basic & specialty chemicals, clothing & textiles, basic metals & mining, light manufacturing, media & audio visuals, machinery & equipment, industrial infrastructure, tourism, and automotive & transport equipment. You can also choose from a range of different funding options that best suit your business needs. Funding can be structured as debt, equity, guarantees, trade finance and venture capital. Apply for funding on the IDC website.

Business Funders

Government funding options can be limited and if your business doesn’t meet all the criteria you’re unlikely to even be considered. An alternative is turning to the private sector. Finding the right option for you will largely depend on how involved you would like your investor to be in your running of the business. The most popular private sector funding options tend to be either venture capital funding, angel investors, crowdfunding or being a part of a business incubator program.

Venture Capital Finance

If you don’t mind giving up part ownership of your business, the venture capital and equity route might be for you. If investors see potential for high growth, they may be open to providing seed funding for your business via private equity capital. While there are not many networks to connect you to venture capitalists in South Africa, you could find out more from the Southern African Venture Capital and Private Equity Association (SAVCA) and even access the resources on their website.

Angel Investors

Angel investors are usually high net worth individuals who provide financial backing for startups, often in exchange for ownership equity in the company. Many are prepared to invest in businesses that are high risk and who do not qualify for funding from a bank or government. Popular angel investor networks locally include Jozi Angels and Investment Network.

Crowdfunding

Crowdfunding involves funding a project by raising small amounts of money from many people. In recent years crowdfunding has become more accessible with new platforms coming about that make the process of finding people to fund your project easier. Crowdfunding can be effective for both small and large amounts of funding. Popular crowdfunding platforms in South Africa include: BackABuddy, ThundaFund and Jumpstarter.

Incubators

If you are looking for more than just finance resources, joining a business incubator program might be the best option for you. Business incubators facilitate the development of new businesses and often provide funding too. Other benefits that you get from such programs are mentorship, education, facilities, and business networks. Popular business incubators in South Africa include Raizcorp and The Innovation Hub.

SMME’s in South Africa have many different funding options available.  Not having capital readily available should not be a deterrent from starting or expanding your business. Analyse your unique situation and find the most suitable funding option for your business. Outsource Finance (Pty) Ltd services are available, finding suitable funding/ loan for your company while you focus on your business.  

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