Big win for small business

According to a recent report by Global Entrepreneurship Monitor, South Africa’s entrepreneurial activity is at the highest level since 2013. This can be partially attributed to the high unemployment rate and new opportunities that have become available to small business owners.

Bolstering these factors are the Department of Trade and Industry’s (dti’s) Preferential Procurement Regulations, which require government procurement departments to favour historically disadvantaged individuals, with a particular focus on youth- and woman-owned businesses.

“Those who work in procurement departments within government must see themselves as enablers to achieve service delivery promises,” says eThekwini Deputy Mayor, Fawzia Peer. “Under the Preferential Procurement Regulations, one of the new requirements is that at least 30% of the value of contracts above R30-million must be sub-contracted to assist in the development of emerging suppliers. We would actually like to see all suppliers subcontracting to SMMEs, cooperatives, as well as township and rural enterprises, irrespective of project value.”

A survey of more than 1 200 entrepreneurs conducted by Seed Academy revealed that only 18% of respondents have attempted to secure funding from banks or development funding institutions like the Industrial Development Corporation (IDC) or dti.

Donna Rachelson, CEO of Seed Engine, the ICT accelerator that runs Seed Academy, says: “Some entrepreneurs indicated that they simply don’t know where to go for funding especially in light of the fact that most early-stage business funding requirements are below the R100 000 threshold.

“There is certainly a case to be made for funding providers to revise certain requirements to better accommodate the unique needs of small and early-stage businesses. Of course, one unfortunate implication of self-funding is that growth potential is limited to the owner’s own pocket and diminishes the ability for a small business to increase capacity, hire more staff and make a more meaningful impact on the South African economy.”

The South African government has created several departments and agencies focused on business development by providing assistance in the form of either finance or grants.Loans, which must be serviced and repaid in full, fall under the umbrella of finance. Incentives or grants, on the other hand, are non-repayable contributions to a business and are typically disbursed as a percentage of the overall cost of an intervention. By way of example, if an abattoir owner purchased a new meat processing plant at a cost of R10-million, government would provide a percentage of the investment amount as funding

Agencies such as the Small Enterprise Development Agency (Seda), the IDC and the Land Bank (for agricultural finance) provide development finance on a national level. Regional and smaller development finance agencies, like the Mpumalanga Economic Growth Agency (MEGA), the Gauteng Growth and Development Agency (GGDA), Wesgro in the Western Cape and the KZN Growth Fund, focus on particular provinces. Other institutions are sector-specific, for instance, the Technology Innovation Agency (TIA), which aims to stimulate technological innovation in South Africa.

Incentives and grants are provided by Seda, the Department of Small Business Development (DSDB) and the dti. Such funding helps to catapult small businesses into the mainstream economy by subsidising their investment into core business activities such as machinery, business support services and software.

The Small Enterprise Finance Agency (SEFA) provides access to development finance in the form of loans. While interest rates vary depending on the applicant’s risk profile, rates are higher than commercial banks. Loan sizes vary from R50 000 to R5-million and borrowers should expect to pay between 2% and 5% above the prime lending rate in interest.

Entrepreneurs seeking loans exceeding R5-million need to approach the IDC.Focusing on key industries driving our economy, the institute funds startups and existing businesses with minimum funding requirements of R1-million to R1-billion. The IDC provides a variety of funding instruments such as debt, equity, guarantees and bridging finance. Again, interest rates depend on the applicant’s risk profile and, in certain instances, can be lower than those offered by SEFA and other finance agencies. When combined with a grant from the dti, significant savings and favourable payment structures can be achieved for businesses.

GRANTS AND INCENTIVES AGENCIES The dti is the primary source for grants and incentives. In 2014, the DSBD was created to focus on small business development; Seda and some programmes offered by the dti were integrated into this newly formed department.

GRANTS OFFERED BY THE DTI There are a number of grants offered by the dti; many are sector-specific.

When applying for a grant, it is prudent to verify its status, as many that are still listed on the website have been closed or placed under revision.

Some of the programmes worth exploring are the Black Industrialist Scheme (BIS), the Agro-processing Support Scheme (APSS), 12I Tax Incentive scheme and the Strategic Partnership Programme (SPP).

The BIS is a cost-sharing grant, offering a grant of 30% to 50% to approved entities, up to a maximum of R50-million. The grant will depend on a number of factors, including the level of black ownership and management control, and the project value. The grant may be utilised for capital investment costs, feasibility studies towards a bankable business plan, post-investment support and business development services.

GRANTS OFFERED BY THE DSBD The Black Business Supplier Development Programme (BBSDP) is another cost-sharing grant offered to black-owned small enterprises. It is aimed at assisting these companies in improving their competitiveness and sustainability to become part of the mainstream economy and create employment. The programme provides grants to a maximum of R1-million on a cost-sharing basis.

The Co-operative Incentive Scheme (CIS) is a 100% grant for registered primary co-operatives that consists of five or more members. The objective is to improve the viability and competitiveness of co-operative enterprises by lowering their cost of doing business through an incentive that supports Broad-Based Black Economic Empowerment. The maximum grant that can be offered to one co-operative entity under the CIS is R350 000.

AN ENTREPRENEURIAL OUTLOOK Apart from government agencies, there are seed investors, crowdfunding organisations and other private enterprises that provide financial assistance as part of their corporate social investment contribution. These include the Old Mutual Foundation, Masisizane Fund, Sasol Siyakha Fund and the Anglo American Zimele Fund, among others.

South African entrepreneurs are privileged to have access to such a large variety of funding options. There is, however, room for improvement when it comes to making funding accessible to all businesses. Entrepreneurs need to be better informed about available funding options and government needs to be proactive in simplifying the process for applying for finance and incentives.

ENTREPRENEURSHIP IMPROVES PRODUCTIVITY Entrepreneurship injects the economy with a fresh batch of higher productivity firms, increases competition among existing businesses and pushes out less productive ones.

ENTREPRENEURSHIP SPURS INNOVATION New firms are disproportionately responsible for commercialising new innovations, particularly radical innovations that spawn entirely new markets or substantially disrupt existing markets.

ENTREPRENEURSHIP CREATES JOBS New and young businesses, not small businesses, are the engine of net job creation in the economy.