Small businesses and entrepreneurs are the backbone of the South African economy.
With the right support and access to capital, the sector has the potential to dampen unemployment and drive growth.
Despite a competitive environment, SMEs have several funding options they can tap into.
When funding is a good idea for your business
SMEs, particularly start-ups and young businesses, typically need funding for a variety of reasons.
The key is to only consider raising capital when the funds are going to be used to grow the business.
It may be to exploit an exciting opportunity, fulfil a contract, buy equipment or machinery, or bridge a short-term gap in cash flow caused by late payments.
Securing business funding is only a viable solution when you are confident you’ll be in a position to repay the funds within the coming months.
Small business funding solutions in South Africa
Here’s a breakdown of the resources and opportunities available in the small business financing niche in South Africa.
Small business incubators
There are several business incubators in South Africa focussing on the start-up and small business ecosystem.
These organisations mentor early-stage businesses, and provide resources and wide-ranging support – from work space and coaching to access to markets, investors and financing.
Business incubators in South Africa include:
SME South Africa has put together a comprehensive guide to SA business incubators, with details on leading role players, available services, and how to apply for a business incubation programme.
Major banks
Banks offer business funding in the form of overdrafts, debtor finance or asset finance.
These funding solutions typically have lower fees and interest rates than other options.
However, there are stringent qualifying criteria. Also, banks base approvals on the business’s financial track record, credit score and risk (the ability to repay the loan). This excludes many companies, especially early-stage enterprises, from securing the funds.
Public funding
Public funding or crowdfunding has become a popular alternative to mainstream financing solutions.
With this funding model, individuals invest money in the business in exchange for shares or interest.
Appeals for funding can be made via web-based crowdfunding platforms such as:
Asset-based funding
Finance providers like LoanAgainst offer short-term business loans against assets, including company cars, delivery vans and personal items of value, such as luxury wristwatches, jewellery and antiques and art work.
Approvals are based on the value of the assets, and not credit ratings, financial records or bank statements.
Funding is available almost immediately, and has no impact on the business’s future ability to raise capital.
Funding against invoices
Niche finance providers offer cash advances against outstanding invoices. This type of funding vehicle is designed to resolve short-term cash-flow issues.
All that is required to secure the funds are details of the suppliers due to make payment and the invoices.
Once the suppliers settle the outstanding invoices, the funds are repaid to the finance provider, along with any fees and interest.
State funding
The state, through the Department of Trade and Industry, supports emerging and established small businesses via a variety of programmes and funds, such as:
- Small Enterprise Finance Agency provides debt funding and helps SMEs secure bank loans
- Isivande Women’s Fund offers funding to businesses involved in promoting and supporting the economic empowerment of women
- Small Enterprise Development Agency provides mentoring, tools, techniques and funding
- Co-operative Incentive Scheme offers grants and support to registered co-operative schemes.
Other forms of small business government funding include:
- Growth Fund
- Technology Innovation Seed Fund
- Tourism Transformation Fund
- National Youth Development Agency
- National Empowerment Fund.
Angel investors
Angel investors are typically high net worth individuals, or groups of individuals, who provide funds to kick start or support a promising business venture.
Shares in the business are allocated in exchange for the funding.
There are several online platforms that connect South African businesses with prospective investors, either inside or outside the country.
Leading angel investor platforms include:
Get same-day funding for your small business through LoanAgainst
At LoanAgainst, we offer short-term loans secured by fully paid-up assets.
We base the funding amount on the appraised value of the asset, and offer flexible repayment terms and competitive interest rates.
Why not leverage the equity in your company vehicles and get the cash you need to grow your business now? No credit checks or business financials are required.
Call LoanAgainst on 079 726 4690 to find out more about our same-day business funding solution or apply online now.
