Guide to Government Funding for Small Businesses

The South African government has made it a priority to ensure the success of small businesses. South Africa. South Africa is lucky to have a growing ecosystem of small to medium-sized enterprises (SMEs). There are approximately 2,6 million SMEs in South Africa.

When it comes to funding, the government has set aside capital and development programmes for small businesses. The Department of Small Business Development (DSBD) is focused on facilitating the development and growth of small businesses.

The department also works to ensure that large businesses contribute to inclusive and shared economic growth and job creation.

Government funding comes in many ways. It is mostly in the form of grants, incentives, equity funding and government-approved lenders.

Grants

A grant is an award of money that does not need to be repaid. Government lending agencies provide for 100% of the financial needs of small businesses. Grants are a once-off opportunity and usually stipulate how the funds should be used.

Incentives

Government incentives are paid after the event or service has been provided. You can claim back the portion of the approved provided service. Like grants, incentives do not require you to pay back the money.

Equity Funding

With equity funding, the government provides the business owner with finance in exchange for part ownership. It will also ask for a share of profits as well as a lump sum when they exit.

Government Lenders

Government lending agencies are institutions such as the Industrial Development Corporation (IDC), the National Empowerment Fund (NEF), and the Small Enterprise Funding Agency (SEFA).

Government Financing

Government financing is for specific purposes. The capital you get has to be used for a purchase or an enterprise.

There are many other types of government funding available for SMEs. The requirements differ for each option.

When looking for government funding, it is important to know what the requirements are. Outside of valid documentation, there are regulations you need to adhere to such as being CIPC registered and registered for tax with SARS.

Other requirements are BBBEEE and financial compliance. This includes financial statements, management accounts and tax clearance.

The most common requirements when applying for funding are:

• A basic business plan.
• A feasibility plan.
• A strategic plan.
• Trading licence or permit to trade or business licence.

These are the most basic requirements for government funding. There are also financial documents you need when applying.

• Cash flow projections.
• Outstanding debtors list (customers who owe you money).
• Updated management accounts (income statement, balance sheet and cash flow statement)
• Latest annual financial statements.
• Latest VAT statement.
• Latest three or six months’ bank statements.
• Tax clearance certificate.

Outside of the business and financial documents, you may be required to submit some personal documents too.

• ID documents of business owner(s).
• If applicable, marriage certificates of business owners.
• Company registration documents.
• Office lease or mortgage agreement.
• Shareholder agreements.
• Share register.
• Proof of business address.

The documentation required for funding needs to be accurate and valid. By ensuring your documents are valid and up-to-date, you will increase your chances of getting funding.

Some government funding programmes also require that the business show that it is mainly black-owned, helping to create jobs and overcome poverty for previously disadvantaged groups.

With the funding application requirements outlined for you, let’s look at which government funding opportunities are available to SMEs and startups.

Co-operative Incentive Scheme

This initiative helps cooperatives from various industries access funding. If you are successful, you will be given a cash grant to help your business obtain service that will help it grow.

To qualify for this grant, you need to:

• Be mainly black-owned.
• Be actively involved in creating jobs and helping overcome poverty.
• Register your business according to the Cooperatives Act 14 of 2005.
• Have a basic business plan. It must be attached to your application form.
• Provide quotations for the services you need funding for.

If you need more information on this programme, visit the Department of Trade and Industry website.

Black Business Supplier Development Programme

The programme offers grants in a cost-sharing plan. The funding is meant to help with business skills training. The scheme provides help with promotional marketing materials, software development, quality improvement and process and product improvements.

To qualify for the programme you will need to meet the following requirements:

• Majority black owned (15% or more).
• The management team must have a significant number of black managers.
• Earn R 12 million or less per annum.
• Must have been trading for at least a year.
• Be registered with CIPRO and SARS.

The maximum amount your business can receive is R 100 000.

To apply for the grant, obtain the application guidelines and form. Complete the form and attach a tax clearance certificate when submitting your application.

National Empowerment Fund (NEF)

The NEF aims to promote and facilitate black economic inclusion. The organisation provides financial and non-financial support to black-empowered businesses.

NEF business loans are from R 250 000 to R 75 million. The fund provides financial assistance to all industries. It helps start-ups, businesses that want to expand and equity acquisition.

Under the NEF, there are various funding options available. These include:

Women Empowerment Fund – Aims to drive the provision of funds to businesses owned by black women.

iMbewu Fund – Supports black entrepreneurs wanting to start new businesses. It also supports existing black-owned enterprises that want to expand.

uMnotho Fund – Developed to improve access to BBBEE capital.

Rural and Community Development Fund – Provides financing for businesses in rural areas.

Strategic Projects Fund – The fund is guided by government strategies and supports the government’s economic growth strategy.

Tourism Transformation Fund – This initiative is a capital investment scheme. It aims to support black investors and communities to create and expand tourism-related projects.

Arts and Culture Venture Capital Fund – This fund aims to provide loans to start and/or expand small businesses in the arts and culture sector. Loans start at R 250 000 up to R 5 million.

Alternative Energy Solutions Funding – The fund is aimed at helping black businesses install green energy solutions. The fund helps businesses stay open during times of loadshedding. A maximum loan of R 5 million is provided per transaction.

If you are awarded this funding, you are required to keep the same number of jobs or increase jobs. This must happen during the loan duration.

These opportunities provide you with capital to start or grow your business. If you meet the criteria, you will get your money and begin your business growth.

There are also other financing opportunities available for small businesses. These financing options can be in the form of loans or mentorship programmes. The DSBD has the following financing options for small businesses:

Khula Enterprise Finance – Khula assists SMEs get loans from banks. The organisation provides mentorship to entrepreneurs to help them manage their businesses successfully.

The mentorship programme includes the transfer of skills, development of business plans and pre and post-loan services.

South African Micro Finance Apex Fund (Samaf)

Samaf helps SMEs in rural and outer urban areas with financial services. The organisation does not lend money but uses existing institutions within communities to handle funds and lend to entrepreneurs.

Samaf has three products:

Micro-Credit Fund – Gives loans to entrepreneurs.

Capacity Building Fund – These funds help equip businesses with skills, systems and equipment.

Savings Mobilisation – The fund encourages entrepreneurs to save.

Technology for Sustainable Livelihoods Programme

This programme was developed by the Department of Science and Technology (DST). It makes use of technologies that add value to SMEs and makes them (technologies) accessible to communities. The programme also aims to create jobs for communities by helping grow SMEs. You also receive skills development and training.

The DST offers assistance in the following areas:

Agriculture – Participants are trained to farm indigenous fish as a business. Participants receive technology infrastructure (production cages) and training. Training involves learning how to manage a fish farm, including diseases and harvesting.

Essential Oils – The government provides skills development and training to communities on essential oils. Participants’ businesses are also linked to the essential oils market.

Indigenous Medical Plants – Community members are taught to grow indigenous herbs commercially. The plants have medicinal properties. Communities receive training in farming methods and how to start a commercial business. Their businesses are also linked to local markets.

For more information on the sustainable livelihoods programme, contact the DST (012 843 6481/18).

Youth-aimed support programmes are also available. In our Guide to Township Economy for the Youth, we outlined how the youth can navigate the township to grow their business.

The DSBD has youth-aimed programmes to help them develop their business skills and start their own businesses.

Umsobomvu Youth Fund

The fund helps youth set up, expand and grow their businesses. The programme teaches youth essential business skills and has many other features such as:

• Business maintenance.
• Provides loans and a voucher system.
• Entrepreneurship education training to help youth understand business concepts.
• Basic training on how to set up and run a youth cooperative business.
• Graduate development training for unemployed graduates.
• A business consulting voucher to help youth develop their businesses.

The fund also has advisory centres. The centres provide information, training, and referral services. The centres also have outreach services to communities that are far from the centre. The outreach programmes provide career information, skills development, and business advice.

National Youth Service

The initiative aims to develop the skills, knowledge and abilities of young people. It also helps improve the employability of the youth by providing them with opportunities for work experience and skills development. It also provides further learning opportunities.

For more information, read through the National Youth Service information document.

South African Women in Construction (Sawic)

It’s an association of women enterprises or professionals, and technical staff in construction. Sawic administrators facilitate, advocate and lobbies all the Department of Public Works for the empowerment of its members.

For more information, contact Sawic at 012 337 2400/2174

Technology for Women in Business (TWIB)

The programme aims to make science and technology more accessible to women in business and SMEs.

For more information about this programme, visit the TWIB website.

Gender and Women Empowerment Unit

This unit is part of the Department of Trade and Industry. It manages the South African Women Entrepreneurs Network (SAWEN). SAWEN helps women overcome barriers they experience in business. SAWEN also organises networking forums, and capacity-building programmes and advocates for policies that support female entrepreneurs.

These programmes are all available on the DSBD web page. You just have to pick the one that works for you and apply.