This is what property entrepreneur and co-founder of Tenitor Properties, Odilon Nkhasi, discovered as he embarked on his first project in property development. He and his two business partners, one of whom had a corporate banking background, were exploring the idea of getting into the property market and were looking for a starting point. Nkhasi explains that he read about urban renewal in the inner city of Johannesburg and started identifying property in the area that would be suitable for building low income housing.
“Once we identified the property, we thought ‘we need finance now’. Where do we go? Who’s involved in the market?” They found out about the Gauteng Partnership Fund (GPF) and looked at the organisation’s website to see the type of projects it funded and then visited the offices to get some direction on what to do in order to access finance. For any prospective start-up looking for funding, it’s always important to understand the funder that you are approaching. If you don’t know their mandate, you can’t pitch effectively to them.
Presenting the business case
The GPF asked the entrepreneurs to put together a comprehensive business plan which clearly laid out the partners’ expertise, realistic costs for the refurbishment and rentals that could be charged for the building. The plan then had to be presented to the GPF. Nkhasi and his partners met with a GPF loan officer who explained that the organisation operated in the affordable housing sphere and that their business case had to be aligned to that. He also gave them a breakdown of all the basics that needed to be covered.
Nothing built in a day
During the process, the GPF did background checks on the company itself and the business case to make sure the project was viable. The process demanded patience from the entrepreneurs, which is another vital point to remember: you don’t secure funding overnight. If that’s your plan, you already have a problem. According to Nkhasi, the business case was first presented to the GPF in October 2009 and approval was only provided in July 2010.
“We went through about two or three revision and additional information sessions until we got it right. You need a lot of patience while the process is happening. It’s not an overnight thing, it’s a process that takes as long as it takes. You have to hang in there.”
Investing in the business
Between the three partners, they were able to raise R800 000 of their own funds to invest in the project. Investing your own money, says Nkhasi, demonstrates that you really want to make the project work. He explains that the entrepreneurs contributed 2%, and the GPF 28%. The remaining 70% was secured through commercial property financier, TUHF.
Believing in the viability of Tenitor Properties’ first project, the GPF approached TUHF with their business case for additional funding. All money loaned has to be paid back over 20 years, but the payments only start after 12 months of securing the loan to give Tenitor Properties time to complete the renovations and start earning money with the project.
According to Nkhasi, what helped his company access the loans was that their team has the necessary skills to start up and carry a business, as well as the passion and commitment to see it through. “It’s also important to understand the market and what you are getting yourself into. You need to know how it operates, how to do renovations,” he says. Another thing he believes helped was that they all put away some money that could be used as equity. “It helps to put money away, so you should always start with that.”
The investor’s perspective
Boni Muvevi, chief investment officer at the GPF, says the GPF was comfortable with the ability of the three entrepreneurs. “Looking at their backgrounds, we felt they have the financial understanding to see the project through. The project was interesting enough and aligned to our mandate,” he explains.
Muvevi says the GPF does not just look at CVs, they look for entrepreneurial flair, the ability to see a project through to the end and projects that will make financial sense. “Of course there will be gaps as they are just starting out, but it is important that they understood those gaps, and that we could work together to fill them.”
The fact that they were a team of three, all bringing different skills, was a strength Muvevi identified. “Three partners makes it easier for them to grow. They will also encourage each other to remain motivated and see the project to the end.” Another advantage was that between them they had knowledge of the industry and financial understanding. “This is partly why they raised their head above everyone else. Many people don’t know where to start, but these guys had some insight,” he adds.
When looking at the business case, the GPF identifies a number of areas, including whether or not the entrepreneurs understand the market; who their target market is; whether or not it is in line with the GPF’s mandate; whether or not a market analysis has been done; and finally, the backgrounds of the entrepreneurs and the accuracy of their financial projections. Muvevi adds that it is key for the entrepreneurs to invest their own money into the project to show their commitment.