In order to help qualified alums of the SAB Foundation’s, South African entrepreneur programs gain access to affordable financing, the SAB Foundation has launched R88 million in Financing for Impact Fund in collaboration with Lead Impact Capital and the National Treasury’s Jobs Fund.
With little collateral and a bad reputation among investors, small businesses in South Africa face a significant financing gap that the Impact Fund hopes to help close.
“The perceived risk translates into businesses either not qualifying for finance, or when they do, interest rates can often exceed 20%, with some short-term cash flow lenders charging interest rates as high as 30%,” explains Bridgit Evans, executive director of the SAB Foundation. “This leads to a high default rate, further discouraging investors from lending into this market, which creates a vicious cycle.”
With grant capital as its foundation, the Impact Fund can offer interest rates between prime minus 2 and prime plus 3. Loan amounts can be anywhere from R200,000 to R10,000,000, with the requirement that business owners provide adequate documentation to back up their requested sum.
Asset and equipment financing, expansion financing, purchase order and cash flow financing are all viable uses for the funds.
SAB Foundation Tholoana Enterprise Fund, Tholoana Enterprise Programme, Social Innovation and Disability Empowerment Awards, and Social Innovation Fund alums seeking to expand their businesses and generate new jobs are encouraged to apply for funding.
After at least two years of working with the SAB Foundation’s mentors and trainers, borrowers can be judged on factors other than their credit score when determining whether or not they will repay their loan.
“If South Africa truly wants to grow the economy and create jobs, we need to find innovative financial products that do not pass on the high-interest rates to SMEs,” says Evans. “Together with Jobs Fund and LEAD Impact Capital, we are testing a model to address this, by mitigating risk in three ways.”
The model’s goal is to fill the “missing middle” funding gap for small and medium-sized businesses (SMEs), which are typically too large to qualify for micro-financing but too small to qualify for conventional financing. Small and medium-sized enterprises (SMEs) will be able to get the funding and assistance they need to expand their businesses and create new jobs thanks to the Jobs Fund’s collaboration with the SAB Foundation.
“These enterprises are important job creators, particularly for young people, women, and those living in rural areas,” says Najwah Allie-Edries, the head of the Jobs Fund. “Through the Jobs Fund partnership with the SAB Foundation, we hope to scale up this initiative and make a meaningful contribution to enterprise growth and job creation.”
With the Financing for Impact Fund, the SAB Foundation and LEAD Impact Capital seek to demonstrate to the South African financial and investment community that small businesses with innovative and impactful business models are investable.
“If we are able to demonstrate that all loans are repaid, we will be able to use this as a model to attract further finance so that entrepreneurs with real growth and job creation potential are not held back by a lack of access to affordable capital,” concludes Evans. “Our aim is to ultimately build a model that can be scaled and replicated by others.”
