A Guide to The Small Enterprise Finance Agency SME Loans

Posted on January 28th, 2015
Articles Funding

A guide to the Small Enterprise Finance Agency SME loans

The Small Enterprise Finance Agency (Sefa) fund is a billion rand fund geared towards helping young people start businesses or grow existing ones by offering SME loans.

Sefa recently made news, CEO Thakhani Makhuvha in an interview with City Press, said Sefa had used about R300 million of the R1.7bn amount that was allocated,saying R1.4-billion was still available

Makhuvha went on to add that one of the biggest challenges the fund faces is entrepreneurs not having a business plan that is bankable.

“There are some entrepreneurs with brilliant ideas but they just can’t put pen to paper and we find it hard to back them,” he said.

Sefa was established on 1st April 2012 as a result of the merger of two funding institutions, the South African Micro Apex Fund, Khula Enterprise Finance Ltd and the Industrial Development Corporation (IDC).

Here is a basic guide of how the loan fund works:

Target market

The money is targeting young people between the ages of 18 and 35.

The target market is survivalists, micro, small and medium businesses including co-operatives (SMMEs) falling in the following funding gap:

Survivalists and microenterprises – loans between R500 and R50 000
Small Enterprises – loans between R50 000 and R1 million
Medium enterprises – loans between R1 million and R5 million

Type of loans 

– Loans for cooperatives –  Both startup and business loans are offered to cooperatives.
– Bridging loans – A short-term loan that is provided to an enterprise to finance working capital needs (i.e. stock and/or operating overheads).
– Term loans – A loan with a specific amount, which has a specified repayment schedule and a floating or fixed interest rate. Term loan is used to finance assets that have a medium to long term lifespan (e.g. machinery, fixtures and fittings, vehicles, office equipment). Term Loans can also be used for start-ups, expansions and acquisitions of businesses.
 Structured finance – A debt facility that is tailored around the requirements of the project (tailored finance).

Other services

Sefa also provides SMEs with a range of non-financial specialist products to small businesses including: a credit guarantee scheme, which provides credit guarantee products to lenders (commercial banks and other financial institutions) for SME borrowers; post loan support which is designed to provide business support services to enterprises during the life cycle of the business from early stage, as well as the decline phase when the business may be in need of turnaround specialists.

Sefa also has a Land Reform Facility, a Broad Based Black Economic Empowerment Fund capitalised by the Department of Rural Development and Land Reform, which aims to broaden the control, management and ownership by black South African citizens in land-based high-value income generating assets in the agricultural sector.

The organisation also offers SMEs that have benefitted from its loan facilities and its financing partners non-financial support through its Institutional Strengthening Support programme which provides SMEs with support in the following areas:

– The strategic and organisational needs of the organisation, focusing specifically on key business processes.
– Processes and systems of the organisation, focusing specifically on areas such as back office management, asset and liability management, enterprise wide risk management, accounting and internal audit and HR systems and IT system.
– Management and leadership training and up-skilling, focusing specifically on core competency gaps and weaknesses such as (but not limited to) management and leadership skills, investment appraisal and risk analysis, project finance and computer literacy.

Qualifying criteria

According to the Sefa website, to qualify SMEs must submit a written proposal or business plan that meets the requirements of sefa’s loan application criteria. Because it is a loan, the SME mus demonstrate the character and ability to repay the loan. The enterprise must also be owner managed. For a full list of requirements see here.

How to apply

Applicants must approach the nearest regional office for the initial basic assessment. Following assessment, due diligence is performed by Sefa and application submitted to committee for a decision.

All information from the Sefa official website