Many small businesses face the challenge of gathering capital to start and/or expand their businesses. Loans from the government can be a cost-effective means to get the funds you need, but there are important things to consider on the way – such as being prepared for a lot of paperwork, strict selection criteria, and a very long wait.
What is a business government loan?
Most loans for business come through the Department of Trade and Industry (DTI) and its associated organisations like the Small Enterprise Development Agency (SEDA). These are loans tend to offer comparably lower interest rates to financial institutions, and have longer or more flexible repayment terms.
Do you have to repay a government loan?
Yes. Businesses that receive a loan from the government are still required to repay the loan in the same way they would if receiving finance from a bank. The difference is that interest rates are much lower and repayment terms longer or more flexible.
List of government loans for business
- Isivande Women’s Fund is an exclusive women’s fund established by the DTI to accelerate women’s economic empowerment through affordable, usable and responsible finance. For more information visit their site.
- Khula is the government’s agency for small business finance. It operates across both public and private sectors and is dedicated to providing much-needed funding to businesses. It serves as indemnity to financial institutes providing loans to businesses without assets to put up as collateral. Visit their site for more information.
- National Youth Development Agency (NYDA) offers mentorship, development programmes, grants and facilitates funding for youth businesses in South Africa. Visit their site for more information.
Who can apply for government loans for business?
Each of the loans listed above have their own qualifying criteria:
For Isivande Women’s Fund, applicants need to be:
- At least six months in operation
- Have a >50% women’s share and management
- In need of start-up, expansion or growth capital
- Have growth potential on a commercial scale
- Able to improve social impact in the form of job creation and economic empowerment.
For Khula Fund, applicants need to be:
- Able to provide as much as 10% of the amount they wish to borrow in the form of cash or equipment that can be used in the intended business.
For NYDA, applicants need to be:
- Between the ages of 18 to 35
- Have the necessary skills and experience or potential skills and experience to run a business
- South African citizens
- Involved in the day to day operations of the business
- Growing a business that is commercially sustainable, viable
- Profit motivated.
Tips on applying for government loans for business
Ask yourself the following questions before approaching organisations for funding. Having these answers ready may help you gain a loan:
- Why do I need funding for my business? Is your business a ‘leaky bucket’ in the form of too-low pricing, expenses too high, inaccurate book-keeping?
- Am I growing too fast? You need to show that you’ve invested in staff and infrastructure to support your further growth.
- Is it the right time for me to borrow? Is the industry in a growth phase or in turmoil? Are the interest rates at banks favourable? Is your business stable?
- How much money do I need? You need to know exactly how much money is needed and what for. Make sure your business plan reflects these needs.
- Can I wait for finance? Whether it’s through a bank or the government, the process is often very slow and frustrating. Be prepared to wait a long time.
- Is my credit record clear? This is essential for any kind of loan, no matter where it comes from.
- Is my business registered and conforms to all regulations? For an existing business, the entity needs to be registered, have a valid tax clearance certificate and a Vat number.
- Can I make repayments? Carefully consider the terms and conditions of the loan to determine whether your business can afford repayments in the specified time-frame, and what the consequences of non-payment will be.