How to: Funding Sources
Small, micro and medium entities are the building blocks of an economy. Many of them lack awareness of a variety of governmental sources of soft capital. These are discussed below:
Department of Trade and Industry (DTI)
Various grants are available to SMEs in various different sectors. The DTI has various programmes and grants in place to encourage new SMEs and to create employment in our country as summarized below:
The Black Business Supplier Development Program (BBSDP)
This is a grant that encourages Black businesses to grow by acquiring assets and operational capacity. The BBSDP allows for a maximum of 1 million investments to a 51 black owned entity of which 50 of management must be black as defined of the 1 million.
• R800 000, of which R400 000 is contributed by the DTI and the remaining amount is to be contributed by the entity and is to be used for machinery and equipment.
• The remaining R200 000 is to be used to develop the business contributed in the ratio 80:20 between DTI and the receipt
Co-Operative Incentives Scheme (CIS)
This scheme is for co-operatives formed with five or more black members. A co-operative is a body of people who come together for mutual benefit either in a social, economic or cultural way. This scheme aims to promote co –operatives on a 90:10 cash basis grant by assisting co-operatives to meet their start up requirements. The maximum amount that this scheme offers is R350 000. This scheme is offered to co-operatives incorporated and registered in the Republic of South Africa (RSA) that are operating in emerging sectors within rural and semi urban areas while abiding by the principals of co-operatives. This is biased towards women, youth and disabled individuals. Significant emphasis has been placed on this area by DTI.
Technology and Human Resources Industry Programme (THRIP)
THRIP is a project between DTI and the NRF (National Research Foundation). This scheme was implemented to increase the high level of technical skills for the industry for the industry and improve South Africa’s competitive edge through the development of technology. This grant is primarily aimed at engineering graduates. The THRIP fund capacity is R150m. The THRIP aims to develop these SMEs into large companies, expanding the network and allowing these SMEs access to scientific expertise, equipment and facilities at partner research entities.
Incubation Support Programme (ISP)
This grant is aimed at initiating entities to follow them to develop incubator programmes and thereby create employment within the communities and in turn strengthen the economy. The programme is aimed at encouraging partnerships between the private sector, SMEs and government in order to create sustainable growth within the economy by creating these incubator programmes. The ISP is available on a 50:50 cost sharing basis between the government and the private sector. The ISP must offer the SME a cost sharing ratio of 60:40. This is capped at R10 million a year for three years. The ISP also provides mentorship to develop the necessary services and grow the entity. The ISP lasts for two to three years, in which time the incubator should become self-sustainable. The costs that the ISP will cover include the business development services, market access, machinery equipment as well as tools ,the infrastructure of the entity that has to do with the creation of the incubators, feasibility studies, product or services development as well as operational costs.
Capital Projects Feasibility Programme (CPFP)
This project is aimed at RSA enterprises in the capital goods sector that have this potential to boost expansion and employments within the country by attracting foreign investment. Feasibility studies in the capital goods sector play an important role in opening contract and project opportunities. This project cost sharing is a 55:45 programme and includes the costs of the feasibility (50:50) that will increase local exports and stimulate the market for RSA goods and services. The grant is capped at R8m.\
The objectives of the CPFP are to
• Increase domestic and foreign investment;
• Create employment;
• Create demand for RSA goods and services; and
• Create upstream and downstream links between SMEs and BEE firms
The criteria for the projects are:
• New projects, expansion of existing projects and stimulating existing projects;
• Feasibility study fulfils the objectives of CPFP;
• Minimum local content (50% for goods and 70% for services);
• Project must have good chances of success; and
The scheme pays the full cost of the feasibility study and the rest will be paid as per milestone achieved.
Clothing and Textile Competitiveness Improvement Programme (CTCIP)
This is a grant designed for the clothing and textile manufacturing industry. It is directed at the international market for quality and affordable clothing. This grant is aimed at individual companies or clusters (a group of manufacturing companies).
• The programme cost sharing grant ratio entails that investment is given to RSA ordinary clusters in the ratio of incentives given of 75:25. The grant cannot be used for machinery, equipment, commercial vehicles, land or buildings. The grant is capped at R25m, over the period of the programme implementation.
• The cost sharing ratio for national clusters is:
• YEAR ONE : 100% investment grant
• YEAR TWO: 95% investment grant
• YEAR THREE: 90% investment grant
• YEAR FOUR : 80% investment grant
• YEAR FIVE: 70% investment grant
Manufacturing Competitiveness Enhancement Programme (MCEP)
The purpose of this grant is to improve manufacturing competitiveness in the South African manufacturing and services support market. The feasibility study is done on a cost sharing ratio of 50% for applicants with total assets with a historical cost of at least R30m, and for applicants with less than R30m historical cost of total assets is 7% . To get this grant, applicants need to submit a pre-feasibility study that shows projections of a minimum of R30m. The feasibility cost is capped at R7.5m.
The tax benefit of this grant it as follows
• 7% of manufacture ring value added (MVA)
• 10% MVA (enterprise with an asset value of R3m to R200m.
• 12% of MVA for enterprises with an asset value of R5m to R30m
• 15% of MVA for enterprises 100% BEE with an asset value of below R5m.
MVA is calculated as follows:
Sales/turnover – sales value of imported goods – sales value of other bought-in finished goods – material input costs used in the manufacturing process
Enterprise Investment Programme
This programme is for manufacturing sector. This investment grant is between 15% and 30% towards machinery, equipment, plant and customized vehicle. The incentive is cupped at R200m per application. For less than R5m incentives, the benefit is up to 30 %, payable over three years. If the investment between R2m to R5m, the benefit will be 15% over two years. Foreign investment project include the cost of transporting the qualifying machinery and equipment to RSA as part of the grant. Qualifying expenditure machinery and equipment, land and buildings acquire as part of the investment project and commercial vehicle.
This programme has two parts to it:
• Manufacturing investment programme (MIP): This grant is for promotion of manufacturing in metal fabrication, chemical, plastic fabrication, pharmaceuticals, furniture, automotive and components.
• Tourism support programme (TSP): This is for creation of jobs outside the main tourism destinations (Cape Town, Durban and Johannesburg). The government understands the importance of this sector in its economy. The TSP offers the grants of +30% of qualifying capital investment by enterprises investing less than R2m.
Foreign Investment Grant (FIG)
The objective of this grant is to provide support for the actual cost of transport of qualifying new machinery and equipment. This is to attract foreign direct investors to set up operation in RSA. The grant covers 15% of the value of the imported machinery and equipment to a maximum of R10m
Product Incentive (PI)
This grant also applied to the clothing, footwear, textiles and leather goods industries. The benefit is limited to a maximum of 10% of MVA (sales material input costs). The grant is payable on proof of qualifying expenditure.
Sector Specific Assistance Scheme (SASS)
This is a reimbursable grant, reimbursed in the ratio of 80:20. The grant comprises two parts:
• SSAS generic funding: funding of a nonprofit organization that grants R50 000 for establishment of an export council. There is matching grant of up to R1m based on membership income of 2:1 for operational costs.
• SSAS project funding: this is a reimbursable grant that is given in an 80:20 cost sharing to export council, joint action group (jags). It is for SMEs, women, youth and disabled persons.
• SSAS: project funding for emerging export: This project compensate an entity in respect of activities aimed at the development of South African exports. This fund benefits a person by paying for a return fare economy class, as well as accommodation, transport, exhibition costs and marketing materials. The amount per project is caped at R1m.
Seda Technology Programme (STP)
This programme provides for maximum grant of R1m. Of this R1m, R800 000 is to be used for tools, machinery and equipment of which 35% is contributed by the DTI. The remaining R200 000 is to be used in business development programme on a 50:50 basis.
The objective of this grant is to empower South African women in the arts and crafts sector. This fund is to ensure the quality production commercially viable product by women with relevant skills.
Isivande Women’s Fund
This fund is managed by DTI. Its purpose is to promote the economic empowerment of women. The grant is allocated to a company owned and managed by women (60% which has existed for two years. The loan is from R30 000 up to R2m.
Critical Infrastructure Programme (CIP)
The grant covers the development cost from 10% to the maximum of 30% towards the improvement of the critical infrastructure. This amount is capped at R30M.
Export Marketing and Investment Assistance (EMIA)
The DTI assist the South African exporters by organizing event in which local products can be show cased international traders. The DTI bears all cost of these exhibitions.
• Group outwards-selling missions: this is aimed at foreign buyers wanting to conclude orders with South African exporters.
• Group outwards-investment mission: this is aimed at foreign investors wanting to invest in South Africa. Both of this grant assist with investment/export seminars and conferences, market research missions and lobbying missions. Exporters are compensated for the following: return economy airfare, subsistence allowance per day, transport of samples, and marketing materials up to a maximum of R100 00 a year. Under this grant 50 % of patent registration cost in a foreign jurisdiction is covered.
Film and Television incentives
The South African government offers incentives to promote this industry.
• Foreign film and production and post-production incentive.
• Foreign film and production and post-production short in South Africa on location have an incentive of 20% of the qualifying South African production expenditure (QSAPE).
• Shooting in South Africa in location and conducting post-production with a qualifying South African post-production expenditure (QSAPPE) of R1.5m attracts an incentive of 22.5% of QSAPE and a cumulative 2.5% is added on for the QSAPPE.
• Shooting in the RSA and conducting post production of R3m will result in an incentive of 25% of QSAPE and 30% of QSAPE (a cumulative 25 % added to the additional 5 %.
• Foreign post-production with QSAPPE of 1.5m will attract an incentive of 22.5% of QSAPPE.
• Foreign post-production with QSAPPE of 3m will attract incentives of 25% of QSAPPE.
• SA film and TV production and co-production.
• The incentive is available to qualifying South African productions with a total budget of R2.5m.
• The rebate is calculated at 35% of the first R6.m of QSAPE and 25% of the QSAPE on amounts above R6m.
This loan funding is provided to BEE SMEs that are incorporated and working within South Africa. The funding offered can be up to R10 000 to R3m.
SIZWE/FABCOST will contribute 90% and the remaining 10% is the entity’s contribution. This is payable over a period of five years at a rate of prime +3%. This fund is operated in conjunction with SIFA/Khula.
Loans and equity investment are available to the public on request and tested products. Business partners offer two options. They obtain a shareholding and retain it for five years while participating in shareholder and director meetings. They also offer guidance in management matters. During these five years if surplus cash is available they advise to pay the other shareholders loan. After five years they either sell to a third party or to the existing shareholder. This option is normally a loan in which they provide a term loan, usually five years. Depending on the risk and business model it will be prime +x. Loans can be from R500 000 up to R10m.
Red Door Funds
Nedbank in conjunction with Khula offer SMEs loans.
Khula –Akwanze fund:
This is an agricultural loan for the crop establishment and replantation of crops. For this loan a cane delivery agreement need to be in place. The entity needs authority to occupy the land. The loan starts from R1 300 and goes as high as R15 500 per hectare.
Anglo Khula Mining Fund
The equity stake cannot exceed 49% of the issued share capital. The amount offered is between R1m and R2m.
Small Business Development Fund
Godisa Supplier Development Fund
The focus of this fund is the development of BEE-owned companies (SMEs in Transnet procurement chain with focus on rail and port business. The fund amount to approximately R165m of which an average of R5m will be granted per project.
The funding amount starts at R500 000 and is caped at R5m. The fund will contribute 90% and the remaining 10% must be contributed by the entity. The entity must be owner-managed. The loan must be paid within five years.
Umsobomvu Youth Fund
This fund is managed by Business Partners. The SME would require an amount of R150 000 to R3m to purchase a new or existing franchise which is viable or has the potential to be viable. Thirty % of a shareholding needs to be held by a black South African youth who must be operationally involved.
This fund is managed by Nations Trust and Micro Enterprises
• Micro Enterprises:
-This loan is available to South African black youth aged between 18 and 35 years requiring a loan caped at R20 000.
-The business must operate in the Eastern Cape, Free State, Limpopo or Mpumalanga.
-The South African black youth must be operationally involved in the entity.
• Nations Trust Youth Enterprise Finance:
-Applicants need to be 18-35 year –old black South African youth requiring a loan of not more than R50 000 to operate an existing business in affixed place or expand an existing business.
Youth co-operative financeThe registered co-operative must have a shareholding of at least 50 % black youth with a stable and credible management team requiring a loan of not more than R500 000. All members of the co-operative need to be operationally involved. The funds must be used to start up a business or expand an existing one.