A Guide to Government Funding in South Africa

One of the key ways that the South African government drives the growth and sustainability of small businesses is by providing development funding. This is because the SME sector is of great importance as it contributes to job creation and is an engine of growth for the economy.

In recognition of the role small businesses play, the government has prioritised the promotion and development of small businesses to reduce the SME failure rate and to help small businesses grow.

The Funding Landscape

There is great demand for funding in South Africa.  According to the SME South Africa Landscape Report, ‘An Assessment of South Africa’s SME Landscape: Challenges, Opportunities, Risks and Next Steps’ (Landscape Report), the majority of small business owners surveyed said they are actively looking for funding however, the vast majority (94%) had not received any kind of funding from the government. Only 6% said they had received funding of this kind.

Of the 6% of business owners who noted that they had received government funding, the largest share pointed toward government grants (21%) as the key funding mechanism used. Business owners indicated that they have received funding from other government structures such as the DTI (17%), the NYDA (16%), SEDA (15%), and the GEP (15%). A small portion (13%) of these business owners did indicate ‘other’ government avenues that they have pursued to secure funding, including the Umsobomvu Youth Fund, the National Film and Video Foundation, and the Gauteng Department of Enterprise Development.

Government Funding Challenges

The Landscape Report points to several reasons for the low uptake of government funding, primarily a lack of accessibility to and knowledge about the various funding options available to the small business community, as well as a lack of funding readiness.

Darlene Menzies, CEO of Finfind, an innovative online platform linking finance seekers with matching SA funders highlighted the following concerns in the article ‘SA Funders And Finance Seekers – Where Is The Gap?’.

“Most entrepreneurs don’t know where to start when it comes to applying for finance. The world of funding is largely foreign territory to them, and learning to navigate it can be a challenge. Applying for finance is a daunting task. When you ask about Government funding, the common response is that they know there is funding available, but that it is very difficult to secure. If you are successful, it takes forever for the funds to be paid to you, which often occurs after the opportunity which required funding has been lost.”

To combat this, recommendations in the Landscape Report are additional or improved support for SMEs looking to secure finance, including more information about SME funding to be made available, such as where it can be accessed and the requirements for each fund.

To address the lack of funding readiness, the report recommends that the government take the initiative to train and mentor business owners on business fundamentals such as how to write good business plans, how to integrate accounting systems and better manage their businesses.

The South African government provides several different forms of funding, such as grants, tax incentives, loans and equity finance options.

Grants

A grant is an award of money that is non-repayable, the government lending agency provides for 100% of the financial need. These types of grants are often once-off opportunities to assist new businesses. The receiving business is obligated to spend the funds in a manner specified by the provider.

Cost-sharing Grants

These grants do not provide for 100% of the financial need, they typically finance from 35% to 100% of the applications. The business owner is required to fund the balance of the finance required for the project.

Incentives

Incentives are paid after the event has occurred, unlike grants where the money is provided for a project. Business owners can claim back the portion of the approved project that the incentive addresses. Like grants, incentives do not require that you repay the money.

Tax Incentives

A tax incentive means that the business may deduct a certain amount from the money it owes in tax. The government offers tax incentives to encourage businesses to engage in a specific activity (such as employing young people) for a certain period.

Equity Funding

In this instance, the government provides the business owner with finance to grow the business in exchange for a percentage ownership of the business and a share of profits as well as a lump sum when they exit.

The requirements for specific government instruments will differ depending on the specific grant or incentive.

However, it’s important that all businesses looking to access funding be compliant with all relevant regulatory and statutory requirements such as be registered with the CIPC and registered for tax with SARS.

Read more: The Basics of Registering Your Business

See also: SARS Business Registration Faqs – What You Need To Know To Stay Compliant 

Additional requirements to access government funding are BBBEE and financial compliance, including annual financial statements, management accounts and tax clearance.

In the article, ‘The Consulting Firm That’s Helping Black Industrialists Secure Millions In Funding’ Nadia Rawjee, a financial strategist has the following advice for business owners looking to access government funding.

“Record keeping is essential if you would like to access developmental finance in the future. You need to ensure that you have a strong bookkeeping administrative system, accountants that would ensure you remain tax compliant and provide you with regular management accounts and annual financial statements,” says Rawjee.

Rawjee is the founder of Uzenzele Holding, a niche consulting firm that specialises in helping entrepreneurs access development funding in the form of government grants, incentives or loans from institutions like the Department of Trade and Industry (DTI), Industrial Development Corporation (IDC), National Empowerment Fund (NEF), and Small Enterprise Finance Agency (SEFA).

Below are the most common requirements for applying for funding.

• Basic business plan
• Feasibility plan
• Strategic plan
• Trading licence/ permit to trade or business licence (if applicable)
  Read more: Find Out If Your Business Needs a Trade Licence

Financial documents

• Cash flow projections
• Outstanding debtors (i.e. customers who owe you money)
• Up-to-date management accounts (i.e. income statement, balance sheet and cash flow statement)
• Latest annual financial statements
• Latest VAT statement
• Last three/six months’ bank statements
• Tax clearance certificate

Besides these documents, they will ask for the following supporting documents to confirm statutory compliance and to validate the information on funding applications:

• ID documents of owners
• Marriage certificates of owners (where applicable)
• Company registration documents
• Office lease or mortgage agreement
• Shareholder agreements
• Share register
• Proof of business address
• Relevant business licences, accreditations or registrations

Get a full list of agricultural funds for the following categories/businesses:

• Field crop farming
• Animal production
• Dairy farming
• Food & agricultural value chain
• Agro-processing
• PLUS – Niche funds for Black and Women-owned agriculture businesses

In a bid to grow entrepreneurship in South Africa, a number of government agencies provide financial and non-financial support to qualifying enterprises and individuals.

The IDC is a national development finance institution set up to promote economic growth and industrial development. They offer loan amounts of a minimum of R 1 million with a maximum of R 1 billion per project allowed.

Lending Criteria: Start-up businesses, including funding for buildings, machinery and working capital for businesses operating in South Africa. Existing businesses can also apply for expansionary purposes. Over 50% ownership by persons under 35 years of age. Businesses must demonstrate economic merit and have prospects of acceptable profitability to be able to service their obligation. Broad-Based Black Economic Empowerment certification from an accredited verification agency, where applicable.

Priority Sectors: Green industries (renewable energy, energy efficiency and waste management and recycling), agricultural value-chain, manufacturing activities (clothing, textiles, pharmaceuticals, plastics and chemicals), strategic high-impact projects (logistics industrial infrastructure, mining value-chain, tourism and high-level services, media and motion pictures, knowledge economy – ICT, and biotechnology).

Funds:

• The Green Fund aims to improve the South African SMEs’ energy efficiency and the country’s green economic development.
• The Green Energy Efficiency Fund (GEEF) supports entrepreneurs and businesses that want to invest in energy efficiency and renewable energy technologies in energy-intensive sectors including manufacturing, mining and agro-processing.
• The Agro-processing and Agriculture Strategic Business Unit (SBU) invests in the development of projects and businesses that either create new or expand local manufacturing capacity.
• The Technology Venture Capital Fund provides equity or debt funding to emerging technology-focused businesses to enable the conversion of technology-rich South African intellectual property into a market-ready product.
• The Automotive and Transport Equipment fund provides a minimum of R 1 million (in the form of equity) to the manufacturer or the assembler of automotive and transport equipment to build global competitiveness.
• IDC’s Strategic Business Unit (SBU) for clothing and textiles offers support to a variety of businesses across the sector, ranging from creators of home decor to leather goods producers to manufacturers of natural or synthetic fabrics.
• The Chemical Products and Pharmaceuticals Fund – provides finance to stimulate the growth of the manufacturing sector (for chemical, plastics and pharmaceutical products).
• The Machinery and Equipment Fund aims to improve the competitiveness of downstream manufacturing of machinery and capital equipment where it can be shown that the products have the potential to expand to new markets, as well as create new jobs. Funding is in the form of a minimum equity investment of R 10 million.
• The Youth Pipeline Development Program – is an IDC Special Scheme business support and grant funding programme that assists potential applicants to improve the readiness of their proposal, and thereby increase their probability for IDC consideration.

Sefa provides financial and business support to numerous SMEs and cooperatives throughout the country, furthering the development of existing enterprises or the establishment of new enterprises.

Lending Criteria: Businesses must show economic and financial viability (demonstrated or potential), must operate within the borders of South Africa. The fund only offers debt financing and no equity instruments.

Priority Sectors: Entrepreneurs in the following sectors: green industries, agricultural value-chain (agro-processing and primary agriculture – cash crops only), manufacturing, small mining value chain (mineral beneficiation), tourism, information technology and retail and wholesale of products.

Funds:

• The Tourism Equity Fund provides either grants or debt funding for companies owned by black women and disabled entrepreneurs, in an attempt to reignite an industry decimated by COVID-19.
• The Amavulandlela Funding Scheme is designed solely for entrepreneurs with disabilities.
• The Youth Challenge Fund (YCF) is a youth start-up support programme intended to stimulate the establishment and growth of youth-owned businesses, promote digital skills, grow the economy and foster job creation.
• Asset Finance solutions to finance a wide range of new and/or used moveable assets.
• Bridging Loans to an enterprise to finance its working capital, such as stock and/or operating overheads.
• Revolving Loan facilities are to be used for operating purposes and the loan amount varies from month to month, depending on the client’s current cash flow needs.
• Sefa’s Term Loans offer businesses the cash they need to buy other forms of moveable assets.
• The Inyamazane Funding Scheme is targeted at small and medium-sized enterprises and co-operatives with at least 50 + 1% ownership by military veteran entrepreneurs.

SEDA is tasked with developing, supporting and promoting small enterprises throughout the country, ensuring their growth and sustainability.

Priority Sectors: Green industries (renewable energy, energy efficiency and waste management and recycling), agricultural value-chain, manufacturing activities (clothing, textiles, pharmaceuticals, plastics and chemicals), strategic high-impact projects (logistics industrial infrastructure, mining value-chain, tourism and high-level services, media and motion pictures, knowledge economy – ICT, and biotechnology).

Funds:

• The National Gazelles programme forms part of the government’s efforts to support the country’s SME sector and aims to produce high-growth businesses that will make a dent in the country’s rising unemployment and help grow the economy.
  Find out more about this fund: A Look At The 40 SMEs Chosen For The First National Gazelles Programme 
• Seda Technology Programme (Stp) is responsible for the provision of both financial and non-financial technology transfer, business incubation and quality support services for small enterprises in specific industries, such as ICT, aluminium, platinum and bio-diesel.
  Read more about this fund: SMEs Not Taking Full Advantage Of Tech Support Programmes 

The organisation offers microfinance grants for survivalist youth entrepreneurship, and cooperative grants for greater participation of youth in the cooperatives sector.

The objective of the grant programme is to provide young entrepreneurs with an opportunity to access both the financial and non-financial business development support to establish their survivalist businesses.

Find out more about NYDA Grants: What You Need To Know About NYDA Grants 

Lending Criteria: The application process for the NYDA grant includes: Be under the age of 35. The applicants must have the necessary skills and experience or a potential skill appropriate for the enterprise that they conduct or intend to conduct.

Read more: Find out more about the NYDA application process

Priority Sectors: The types of businesses assisted through the grant programme are mainly: artisan skilled entrepreneurs. These include, but are not limited to, motor mechanics and panel beaters, electricians, plumbers, domestic appliance repair services, beauticians, hairdressers, cleaning companies, small-scale recycling companies, street vendors, car washes and others.

Funds: 

The NYDA grant finance starts from R 1 000 to a maximum of R 200 000 for any individual or youth cooperative. Young people interested in accessing the grant programme will have to commit to participating in the NYDA mentorship and voucher programme for a minimum of two years. The program consists of both pre and post-approval assistance.

The NEF is tasked with promoting and facilitating black economic participation by providing financial and non-financial support to black-empowered businesses and promoting a culture of savings and investment among black people.

Lending Criteria: The NEF provides business loans from R 250 000 to R 75-million across all industry sectors, for startups, expansion and equity acquisition purposes.

Priority Sectors: All industries, including but not limited to ICT, tourism, transportation, textile industry, services, retail, property, printing services, motor industry, mining services, media, manufacturing, agro-processing, energy, financial services, food & beverages.

Funds:

• The NEF Women Empowerment Fund is aimed at accelerating the provision of funding to businesses owned by black women across a range of sectors, for startups, expansions and equity acquisition purposes.
• The iMbewu Fund supports black entrepreneurs wishing to start new businesses as well as supporting existing black-owned enterprises with expansion capital.
• The uMnotho Fund is designed to improve access to BBBEE capital.
• The Rural and Community Development Fund supports growth and development in rural economies by financing sustainable businesses.
• The Strategic Projects Fund is informed by government strategies and aims to support the government’s economic growth strategy.
• The Tourism Transformation Fund is a dedicated capital investment mechanism that will support black investors and communities to develop and expand tourism-related projects.
  Read more about this fund: Everything You Need to Know About the Newly Launched Tourism Transformation Fund

The Technology Innovation Agency (TIA) was established in terms of the TIA Act 26 of 2008, with the objective of stimulating and intensifying technological innovation to improve economic growth and the quality of life of all South Africans.

Lending Criteria: The NEF provides business loans from R 250 000 to R 75 million across all industry sectors, for start-ups, expansion and equity acquisition purposes.

Priority Sectors: Focus areas include health, agriculture, bio-economy, natural resources, energy, ICT and manufacturing.

Funds:

• The Seed Fund grant is non-repayable and is provided to support projects run within a higher education institution (a level of outsourcing to third-party suppliers is permitted) or to spin-off companies that are based on IP emanating from this institution.
• The Technology Development Fund provides funding to advance technologies from proof of concept to technology demonstration.
• The Pre-Commercialisation Support Fund assists existing or potential individual entrepreneurs and Small Micro and Medium Enterprises to obtain funding to support pre-commercialisation activities including the development of production/service capacity to levels that will support operational sustainability.

The DTIC and its subsidiary agencies are involved in promoting economic development, black economic empowerment, implementing commercial law, promoting and regulating international trade, and consumer protection.

Lending Criteria: The DTIC supports the development of sustainable, competitive enterprises through the provision of incentive programmes that support national priorities. All incentive schemes on offer by the Department of Trade, Industry and Competition (the DTIC) have their own specific guidelines and qualifying criteria.

DTIC Incentives schemes:

• The Black Industrialists Scheme (BIS) aims to fast-track the participation of black industrialists in the South African economy.
  Find out more about this incentive: #KnowYourIncentives: Black Industrialist Scheme
• The Tourism Support Programme (TSP) is a targeted incentive scheme to support the development of tourism enterprises that stimulate job creation and encourage a geographic spread of tourism investment, and black economic empowerment.
• The Agro-processing Scheme aims to increase capacity, create employment, boost competitiveness and contribute to transformation in the food and beverage value addition and processing (including black winemakers), furniture manufacturing, fibre processing, feed production, and fertiliser production sectors.
  Find out more about this incentive: #KnowYourIncentives: Agro-processing Support Scheme 
• The Export Marketing Investment Assistance Scheme works to export markets for South African products and services.
  Find out more about this incentive: Export Incentives Helping Smes Do Business Abroad
• The Capital Projects Feasibility Scheme is a cost-sharing scheme, providing a contribution to the cost of feasibility studies aimed at increasing local exports.
• The Critical Infrastructure Scheme aims to leverage investment by supporting infrastructure.
• The Cooperative Incentive Scheme promotes cooperatives through the provision of a matching grant and assists them in improving the viability and competitiveness of their enterprises by lowering the cost of doing business.
  Find out more about this incentive: All Your Cooperatives Incentive Scheme Faqs Answered 
• The Spaza Shops and General Dealers Support Scheme was launched in partnership with Nedbank in April 2020 to offer financial and business support to general dealers or traditional grocery stores that are based in townships and villages.
• The South African Emerging Black Filmmakers Incentive aims to assist local emerging black filmmakers, to nurture and empower them to take on big productions and thus contribute towards the creation of employment.
  Find out more about this incentive: Film Production Incentives Aiding The Creative Arts Industry 
• The South African Film and Television Production and Co-Production incentive assists local film producers in the production of local content.
  Find out more about this incentive: Film Production Incentives Aiding The Creative Arts Industry
• The Foreign Film and Television Production and Post-Production incentive seeks to attract foreign-based film productions to shoot on locations in South Africa and conduct post-production activities. Co-productions with international companies result in the direct investment of millions of rands into the economy.
• The Automotive Investment Scheme (AIS) is an incentive designed to grow and develop the automotive sector through investment in new and/or replacement models and components that will increase plant production volumes, sustain employment and/ or strengthen the automotive value chain.
• The Aquaculture Development Enhancement Programme (ADEP) is an incentive programme available to South-African-registered entities engaged in primary, secondary and ancillary aquaculture activities in both marine and freshwater.
• The Sector-Specific Assistance Scheme (SSAS) is an upfront and reimbursable cost-sharing incentive, which grants financial support to registered sector coordinators that are recognised by the DTIC, supporting the development of industry sectors and contributing to the growth of South African exports.
• The Capital Projects Feasibility Programme (CPFP) is a reimbursable cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and services.
• The Global Business Services (GBS) incentive programme was designed to ensure that South Africa offers a globally competitive business case to investors.
• Special Economic Zone (Sez) Programme. SEZs are geographically designated areas of a country set aside for specifically targeted economic activities and supported through special arrangements (that may include laws) and systems that are often different from those that apply in the rest of the country.

Find out more about COVID-19-specific government funding:

• COVID-19: Payment Relief And Other Government And Private Sector Interventions For SMEs
• COVID-19 Small Business Relief Packages Updates + Reasons Applications Are Rejected