R1.4bn awaits young entrepreneurs with bankable ideas

2015-01-22 16:05

The Small Enterprise Finance Agency (Sefa) has only used up about R300 million of R1.7 billion set aside to fund businesses by young people two years ago.

According to Sefa CEO Thakhani Makhuvha R1.7bn was set aside when the agency was formed out of the 2012 merger of Khula Enterprise Agency and Samaf (South African Micro-finance Apex Fund) for five years and two years later there is still R1.4-billion available to fund young people to start or grow their businesses.

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

Sefa grants loans from R500 to R5 million to young people either to start a business or grow an existing one.

Makhuvha said after the merger the organisation has been a lot more efficient and has also worked on growing its accessibility.

In areas where the organisation can’t directly reach young entrepreneurs, it builds a presence through micro-finance institutions or use the network of its sister agency the Small Enterprise Development Agency (Seda) which has been around a lot longer and provides non-financial support such as the drawing up of business plans and mentorships.

“In March 2012 when Samaf and Khula merged together they had approved projects of R211 million. At the end of Sefa’s second financial year ending in March 2014 we had approved projects amounting to R1.1 billion,” said Makhuvha.

Makhuvha said one of the challenges they face from entrepreneurs is 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.

He said many businesses don’t make it their second birthdays and many fail because first-time business owners don’t get sufficient guidance.

“We engage with Seda a lot on this and we will sometime pay for mentorship for businesses that are struggling because we want them to do well so that they can pay us back our money,” Makuvha said.

The relatively new small business development ministry headed by Minister Lindiwe Zulu has been a good thing for the sector, according to Makhuvha.

Makhuvha said the ministry is pushing for a model of more co-operative lending (similar to stokvels) especially in parliament and this is something he thinks will be good for small businesses.

“People in townships are always complaining about spaza shops owned by Ethiopians and Somalis doing better than theirs... and it is because ten of them will get together and buy in bulk and we need to push for more of this locally,” he said.

Business environment

Even if there is money to start your business, with a stagnant economy and big companies shrinking, the current business environment may just be another hurdle for entrepreneurs to think about.

Nazeem Martin, Managing Director of Business Partners Limited, a specialist risk finance company for formal SMEs (small and medium enterprises), said 2015 will be challenging for South African small businesses due to the continued sluggish economic growth and the inability of Eskom to ensure an adequate, consistent and reliable power supply.

He said that overall 2014 was a tough year for businesses and this was primarily attributed to generally adverse conditions.

“Many factors during the year undermined businesses confidence and hence their desire and ability to grow and contribute towards economic growth in the country,” says Martin.

He said these included labour unrest, unreliable power supply and access to markets, especially internationally.

He said SME success depends on sentiment and perception, and unfortunately it is clear that certain issues will continue to dampen economic growth in 2015.

“Businesses’ desire and willingness to take on risk is dependent on confidence levels, and tough economic conditions will test an entrepreneur’s ability. While positive economic circumstances and high levels of economic growth take a marginal business and turn it into a profitable business, as soon as the economy begins to slow, as in the case of 2014, those marginal businesses struggle.”

If you have a loan from Sefa and you hit some hard times, Makhuvha said there are many options available and that closing you down is the absolute last resort.

Martin gave some advice to entrepreneurs for 2015: “[This year] business owners should vigilantly manage their expenses, and any windfall gains they may experience – due to factors such as lower fuel and transport costs – must be saved or invested in growing their businesses.”

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