Empowerment Funding

Show me the money!

One of the biggest challenges for entrepreneurs and small business owners is finding the funds necessary to launch their businesses. Even existing businesses might need a financial leg-up to grow and develop their enterprises. Here’s how empowerment funding can help.

In South Africa, we have a number of funding bodies, both from the government and private sector, that offer funding towards the ultimate goal of growing the economy. Different from broad-based funding solutions, empowerment funding in South Africa focuses on assisting black individuals, businesses and communities by meeting their funding and investment requirements.

Who do you contact?

What is the process to access empowerment funding, and what are the advantages for small business owners?

The National Empowerment Fund (NEF) describes its role as “supporting Broad-Based Black Economic Empowerment (B-BBEE)” by facilitating black economic participation through providing financial and non-financial support to black-empowered businesses, and promoting a culture of savings and investment.

The NEF provides business loans from R250 000 to R75 million across all industry sectors, for start-ups, expansions and equity acquisition purposes, and implements its mandate in three key areas:

1.     Asset management

By structuring accessible retail savings products through its Asset Management Division, which is a custodian of certain equity allocations in state-allocated investments (SAIs), the NEF aims to foster a culture of savings and investment among its beneficiaries.

2.     Fund management

As a facilitator of the Codes of Good Practice of the B-BBEE Act, fund management supports the pillars of enterprise by providing financial and non-financial solutions across a range of sectors to black-empowered businesses for start-up, expansion and equity transformation purposes.

3.     Strategic Projects Fund

As a leader in venture capital finance, this fund enables entrepreneurs to participate in projects that are at an early stage within sectors identified by the South African government as key drivers to economic growth. The fund also provides project finance and private equity in these projects once they are regarded as bankable.

So how do you, as a small business owner, get your hands on a slice of the empowerment funding pie?

You need to assess if you qualify for funding from the NEF, and study its resources to ascertain how empowerment funding will be able to assist you. Your application needs to include comprehensive information to support the commercial viability and financial position of your business.

Insider tip: If you download the online NEF application form, you’ll see that it has included a business plan guideline to highlight the various topics you need to cover when making your submission, as well as a checklist to ensure that you have provided all the necessary information.

How long does the process take?

The screening period, from submission to approval, can take up to eight weeks. If you are approved for funding, expect to wait another four months for the investment committee to review your application, attend to the due-diligence process, resubmit the final report and meet the legal requirements.

Why should you apply for empowerment funding?

Whatever your plans for your business – be they construction extensions to your building, procuring new refrigeration or other equipment, or even a wildly creative idea to reach a new market – empowerment funding provides an accessible alternative to taking out a bank loan.

If you are credit-listed, for example, you won’t get very far with your bank. The NEF, on the other hand – while suggesting that you iron out any credit-list kinks before applying to it – will still screen your application and treat it according to its own merit. It’ll do a credit check, of course, but will take into account the reason for the listing, the materiality of the amount, and whether the situation can be remedied.

What you need to know

Similar to a bank loan, you will be required to pay back the funding you receive, with interest – this will be calculated according to the level of the funding you receive and the fact that the NEF will, in most cases, carry a higher risk. While the NEF does not supply grants (funding that is not required to be repaid), it may assist qualifying enterprises with access to the Department of Trade and Industry (dti) and other government grants. In addition, the NEF won’t necessarily require security or collateral in the form usually required by the banks, but may ask entrepreneurs to contribute towards the transaction.

Check out the NEF online at www.nefcorp.co.za.

 Who else is out there?

Female entrepreneurs should take a look at the Absa Women Empowerment Fund at www.absa.co.za. This fund provides an alternative to an Absa loan, specifically if you have been declined because of a bad credit score (which must be justifiable).

Another fund available exclusively to women is the Isivande Women’s Fund, which you can read about online at www.gov.za. If you’d like to peruse various empowerment funding options, www.fundingconnection.co.za has a full list of funding bodies available online.

So here’s the question: what do you want to do with your business, and does it require funding? Life is too short not to dream big.