TIPS FOR SMALL BUSINESSES LOOKING FOR FUNDING.
Starting your own business can be challenging, especially if you don’t have the capital to get it off the ground. Fortunately, there are many ways to fund a new business in South Africa.
One way of doing this is through securing government funding, or a government grant. These are awarded to worthy start-ups, and they don’t need to be paid back or accrue interest.
This week Justmoney found out more about these grants, how to apply for them, and what you can do to make your business stand out from the rest.
Where should you look for funding?
Each government sector offers a different range of grants to small businesses. The best place to start is to get in touch with the following organisations that will assess your unique business and circumstances, and point you in the right direction.
|Small Enterprise Development Agency (SADA)|
This organisation offers support and development to small businesses, such as writing up business plans and being set up correctly to qualify for funding.
Small Enterprise Finance Agency (SEFA)
|Created in 2012, it’s dedicated to assisting small businesses secure grants and other forms of financing, such as business firstname.lastname@example.org|
|Finfind||This is where businesses that are looking for financing are put in touch with appropriate lenders.|
Industrial Development Organisation (IDO)
|Created with the purpose of encouraging economic growth and industrial development, this organisation assists small businesses that will support the same email@example.com|
|National Empowerment Fund (NEF)||Focussed on Broad-Based Black Economic Empowerment (BBBEE), this organisation supports start-ups run by previously disadvantaged groups.|
According to Janine Espin, managing director at Economic Development Solutions, how you apply for a grant depends on which grant you’re applying for.
“Some grants may require that match funding be provided in addition to the usual requirements, such as a business plan, motivations, research, permit applications, proof of ability to do the work, proof of skill set, and proof of beneficiaries,” says Espin.
Through the above organisations, you will be able to find out which grants you are eligible for and what else you would need to successfully apply.
How to improve your chances of qualifying
Espin explains that qualifying for government funding is dependent on the type of funding.
“The government provides both monetary and non-monetary support to Small, Medium & Micro Enterprises (SMMEs),” says Espin.
“For example, government provides support to businesses to register with the Companies and Intellectual Property Commission. This is an important step for an SMME to be a registered company before it can apply for monetary grants,” she explains.
Certain grants, such as those from the NEF, specifically cater for population groups who fall under previously disadvantaged groups.
According to Espin, if individuals do not fall within the previously disadvantage categories, it is not impossible to gain grant support from government.
“However, it is beneficial to have a Black Economic Empowerment (BEE) partner that falls within the Broad-Based Black Economic Empowerment (BBBEE) Codes as preference is given to them. Other BEE partners that fall within these codes include women, youth, persons from rural areas, and military veterans,” says Espin.
“It is also possible for white males who were previously advantaged to gain access to financial support through other government programmes such as The Jobs Fund or the Industrial Development Corporation of SA (IDC). However, it is good to note that the IDC is not a grant but rather provides preferential loan repayment terms,” she adds.
Espin believes that it is easiest to obtain grants from within the manufacturing and industrialisation sectors because they encourage localisation and discourage exports.
She points out that financial needs do not always necessitate money, it could also refer to the need of a business to be set up in a rural area where it may create jobs. For example, when a business is set up by a group of rural women who are in dire need of an economic intervention.
Advice to small business owners
According to Karl Westvig, CEO of Retail Capital, there is never a perfect time or a perfect plan to start a business.
"People wait for these moments. It's like having a child, you’re never ready for it. So when you decide you want to do something, you need an 80% plan because you'll never have the perfect plan," says Westvig.
He believes there's nothing more important than an entrepreneur's survival instinct, which will kick in when the chips are down.
"Once you decide what to do, put money into a bank account and start spending it. Because once you do, there's no turning back and any problem you hit, you'll find a solution as your survival instinct kicks in. It's amazing how much you can solve that you never thought you could," he explains.
He points out that it's impossible to be an entrepreneur part-time, and he recommends pursuing your entrepreneurial dreams full-time. On top of this, There's also no such thing as an overnight success
"You need to be looking at a minimum of three to five years before you've got a sustainable business. So you need to ensure you have enough capital to tide you over. Keep your cost structure down and spread it as long as you can," says Westvig.
According to Nelly Mofokeng, managing director at Junior Achievement South Africa, small business owners must never underestimate the power of collaboration and they must look past their own capabilities.
“Do your best to see beyond your business’s capacity, as this is something that’s often overlooked. A lot of small business owners struggle to see beyond what they’re capable of and it can become limiting for their businesses,” says Mofokeng.
She believes that understanding your industry and value chain plays a major role when selecting potential partners and suppliers.
“Just as important is an appreciation of the often tedious process to accessing such funds and the obligations for delivery that will ensure sustained income,” says Mofokeng.
“Cash flow and the management thereof become critical as an entrepreneur’s resilience and creativity is tested by having to wait for funds, and then be able to adequately cover project costs while drawing a reasonable salary for themselves,” she explains.
Mofokeng suggests diversifying funding pools so that you don’t rely on one source. This can often help a great business idea get off the ground as you have more than one partner involved.
The finer details of government funding
According to Espin, the approval process timeline varies from department to department. However, on average this takes a minimum of six to eight months.
“It is very difficult to say how many applications for grants are received annually because they are provided by various government departments, such as agriculture, aquaculture, road maintenance, and construction,” says Espin.
She nonetheless points out that the funding made available to entrepreneurs would depend on the industry or sector, but it could range from about R5,000 to R500,000.
“The government does follow up and monitor the progress of businesses once grants have been allocated. This is especially true with agricultural opportunities or SMMEs,” says Espin.
“SEDA is a good example of providing mentoring to its beneficiaries and asking questions about their goals. Although these grants need to be monitored, the outcome is also dependent on how good the business’s mentor is and whether the government department is being run effectively,” she adds.
This article was first published by Just Money on the 7th May 2019.
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