Starting and running a successful business is not an easy undertaking. Getting your business off the ground takes perseverance, and there may be a lot of obstacles along the way, for example, to register your business. Most small business owners simply do not have the financial resources to scale and grow their businesses independently. Entrepreneurs reach a pivotal point in their businesses when they need funding to take their business to the next level. 

Getting an influx of resources at your disposal can help grow your business and even the playing field so you can complete at a higher level. Below we discuss the type of money you need and why it is needed 

  • Seed money: refers to the money required for materials, office supplies, and business infrastructure 
  • Cash flow: the day-to-day expenses like salaries and other bills 
  •  Expansion: growing your business requires money; new locations, and more products 

Small businesses are the backbone of South Africa’s economy. The country took a hard knock with the global health pandemic, and economic recession – rebuilding the economy is essential and small businesses will play a key role. Co-founder and Chief Executive of Business Lending Facility Lulalend, Trevor Gosling, iterated the crucial role that SME’s play in the economy and South Africa’s Gross Domestic Product (GDP). 

“Not only do they (SME’s) contribute significantly to South Africa’s GDP and job creation, but even more importantly they are critical to driving more inclusive economic growth.” 

The current economic climate in South Africa calls for entrepreneurial ingenuity and now is the time to bring that business idea to life or to think BIGGER and take your business to new levels. 

If you’re stuck at: how can I get my small business funded? We’ll be discussing small business funding in South Africa. 

Top five funding resources in South Africa: 

1. Government funding  

Unlike other modes of funding, government funding does not need repayment, like bank loans. Obtaining government funding doesn’t mean you get free money, it means that your business needs to align with the specific purpose of the governmental department you qualify for, and entrance requirements can be very strict. 

The government’s ultimate goal is to benefit the local community hence, the application process is very specific and involves intense paperwork. Previously disadvantaged, young, or female individuals as well as people who are focused on paying it forward stand a better chance of getting funding. 

To improve your chances of getting government funding ensure that you conduct thorough research on the fund you’re aiming for, what they want to achieve, and who they awarded it to in the past. 

Here are a few government grants that aim to make a difference in the local economy: 

  • National Youth Development Agency (NYDA): The NYDA is targeted at startups and established businesses by entrepreneurs between the ages of 18 and 35. To access these funds, you need to be involved in the mentorship and voucher programme for a minimum of two years. 
  • Isivande Women’s Fund: The Isivande Women’s Fund is intended to empower women in business and female-owned businesses. 
  • Black Industrialists Scheme (BIS): The BIS offers cost-sharing funding. This fund awards a designated amount of money to businesses, depending on the portion of the business that is black-owned or managed.    
  • Tourism Transformation Fund: Funds companies that are 51% black-owned and provide services to tourists. 
  • Technology Innovation Agency (TIA): The TIA offers grants to fund startups based on research conducted in partnerships with higher education institutions or science councils. 
  • Small Enterprise Finance Agency (SEFA): SEFA is allotted R1.4 Billion which is mandated to invest in small businesses in South Africa over the next few years. 

2. Loan financing  

A loan is a line of credit extended to your business with the promise of repayment including interest – the lender does not take any form of ownership in the company. Banks usually give out loans to businesses under the condition that you have surety and that they get a return on the investment in the form of interest repayments. 

Personal loans: 

In the early days, many businesses do not qualify for business loans, and personal loans are the solution. Personal loans only consider your personal finances and credit score when you apply for a loan. A personal loan may be the best avenue for budding entrepreneurs because the requirements aren’t as stringent as business loans. 

Business loans:  

Business loan eligibility assessment metrics include but are not limited to: 

  • Credit 
  • Cash flow and income 
  • Age of business
  • Current amount of debt
  • Collateral
  • and Industry 

Contact your nearest bank to find out what the criteria for obtaining a loan are.  

3. Equity funding

Equity funding means that instead of monthly repayments with interest, the investor takes an ownership percentage of the business. Equity funding investors are invested in your business doing well because that’s how they make their money. They will be board members and be part of key decision-making in a business. 

 Investors make money by: 

  • earning dividends when the business makes money 
  • on the sale of their shares 

4. Venture capital funding 

A venture capitalist is a private investor that provides funding for companies with projected high growth potential. Venture capitalists typically are looking to sell their shares in five to seven years. A venture capitalist is looking for the following in an investment: 

  • scaling at low cost 
  • detailed growth plan 
  • a team to accelerate growth 

A few prominent venture capitalists to check out include:

  • AngelHub Ventures 
  • Edge Growth 
  • Kalon Venture Partners 
  • Knife Capital & KNF Ventures 
  • Newtown Partners 

5. Personal debt financing 

Personal debt financing is when you use your personal resources to fund your business – this includes credit cards, pension funds, and home loans to name but a few. Funding your business using your personal finances means that you solely reap the rewards of your hard work without having to pay anyone back. You should start a low overhead business like an e-commerce store. The setup is easy, and you can run your business from home within 10 minutes. 

If you’re serious about obtaining funding from external sources as listed above, don’t forget to register your business with CIPC. There is no one-size-fits-all when it comes to getting funding for your business. Assess your business thoroughly to decide which funding avenue best suits you.