How to get small business funding in South Africa?
Of all the questions facing entrepreneurs in Africa’s third-largest economy, this is often the most pressing.
Just 9% of small-to-medium enterprises (SMEs) get access to bank or private lender funding, according to a startling survey by McKinsey.
Such a lack of capital is hardly surprising when you consider the hurdles South African businesses must face, including:
- A narrow range of viable funding options, such as small business loans
- Tough lending requirements for those that are available, such as minimum turnover, a detailed business plan, excessive collateral, and a high credit score
- Not knowing how to apply for business funding or finding the time to do so.
The problem is likely to get worse before it gets better, too, with high interest rates, inflation, and an energy crisis likely to continue to affect SMEs in 2024, according to S&P Global’s Banking Outlook.
South African traditional business lending dipped in 2023
Source: South African Reserve Bank (via S&P Global)
It’s easy for SA business owners to feel overwhelmed when confronted with such data, but a recent uptick in alternative funding options is providing much-needed relief.
Advances in fintech services, with its flexible lending criteria and simpler application criteria, mean applying for financial assistance is becoming less problematic than it used to be.
The key is to know where to look.
If you’re an SME or startup owner struggling for financial support, then keep reading for eight tips on how to get business funding in South Africa right now.
Worried about securing finance for your business’s future? Open a Lula account today and find out how our Revolving Capital Facility for SMEs can help you better manage your cash flow and access funding fast.
How to get business funding in South Africa: 8 funding methods that could transform your SME
Boosting your business finances in the higher-risk SME sector is a tough ask, but the present market still offers various funding solutions that can make a big difference to your enterprise. 
Here are eight places you can look right now that answer the all-important question of how to get business funding in South Africa.
1. Asset-based financing
If you find yourself in a position to start with high-value assets or an impressive list of purchase orders but have a limited operating or credit history, then asset-based financing could be the answer.
This type of financing works by using your equipment, inventory, or future purchases as collateral on a loan or line of credit. It’s often a quick route to funds as asset-based lenders often come without excessive paperwork or strict credit criteria.
The downside is that the economic issues mentioned above will likely hold back SA asset-based lending in 2024, with higher interest rates and stricter lending criteria compounding a decline in asset value.
Smart tip
Manufacturing enterprises often benefit from this lending option by using their state-of-the-art equipment to secure funding for raw materials, overhead costs, and marketing efforts.
If this applies to your company, then it might be the kick-start you need in a tough economy.
2. Business incubators
The global explosion in tech start-ups hit South Africa some time ago and has led to sustained growth in the business incubator industry.
Incubators are established businesses that offer mentorship to start-ups so that the two enterprises can grow mutually. Office space, training, and financial advice are three big factors in this, but funding (or start-up capital) is the main catalyst for success.
South African tech start-ups raised almost $1 billion in funding between 2015 and 2022, according to tech development firm Go-Globe, making this a realistic source of funding for the country’s growing number of tech entrepreneurs.
Source: Go-Globe
Smart tip
If you run a tech startup, then now may be the time to look into incubator funding.
Despite its growth, only around a quarter of SA tech enterprises have benefited from this source of funding, meaning you could get a useful advantage over rivals should you secure it.
3. Angel investors
Angel investment is growing across Africa.
Every year, the top angel investment organisations in Africa provide over $1 billion to businesses across the continent, and a large proportion of them are based in South Africa, according to research from the African Business Angel Network (ABAN).
“Angels” are individuals or groups that invest in start-ups with venture capital, particularly in their early stages. If your own business isn’t ready for formal financing options, then angel investing could be a great option.
Not many people realise that angel investors often continue investing after the initial capital injection. The ABAN research found that 72% of African angels provide this follow-on support, which may also take the form of knowledge and access to other sources of income.
There’s also a drive toward investing in African-born entrepreneurs, with 23% of continental angel investment going toward native business owners.
The one potential downside is that angels often seek shares or equity in your company in exchange for capital, so this is something you must consider before going down this route.
Smart tip
Trying to work out how to get funding for a business via an Angel?
Well, ABAN says that building an extensive personal network is key, as 23% of angels in Africa are found this way. Attending start-up events and building referrals (both 19%) are also important.
Source: African Business Angel Network (ABAN).
4. SA SME Fund
One way to break free from the stranglehold of limited bank funding is to look at a private development program.
The SA SME fund is the largest institutional investor in the country with over R1.24bn in investment capital, according to its website.
It stands out, too, for its well of top-class funder expertise, something which Tom Stuart, CMO of South African SME banking platform Lula, believes is extremely important,
“The SA SME fund includes representatives of nearly three-quarters of the JSE’s top-40 companies. It was created specifically to provide high-potential entrepreneurs and SMEs with funding”.
The SA SME fund includes representatives of nearly three-quarters of the JSE’s top-40 companies.
Tom Stuart, CMO of Lula
The fund helps both established and start-up businesses launch or expand their operations thanks to a fund put together by this group of South African CEOs.
The fund is split into two categories:
- Venture capital (including seeding, pre-revenue, and post-revenue funds)
- Growth funds (revenue generative and profitable).
The fund is committed to investing in minority owners, with 50% of the funds mandated to go to Black African-owned and managed businesses. 25% goes to Indian- and Coluored-owned enterprises, with the remaining 25% being at the discretion of the fund manager.
Smart tip
The fund typically invests in businesses with an enterprise value of under R100M, making it ideal for established SMEs as well as start-ups.
5. Crowdfunding platforms
Crowdfunding – the practice of raising funds for business ideas from the general public – is growing. Forbes predicts it to have a global value of $6.8 billion by 2031.
This fundraising mechanism is also on the rise in South Africa, which has led to an increase in the number of crowdfunding platforms available to South African SMEs.
“Crowdfunding is increasingly seen by small businesses as an alternative to traditional lenders, such as banks and government funding, for raising business capital”, says Tom Stuart.
Smart tip
Crowdfunding is most effective for interesting or novel business ideas or initiatives that tap into extremely popular demand like new technology.
If your enterprise is built around one of these, then crowdfunding could be a quick route to funding. If not, then another option on this list might be the way to go.
6. SEFA and other government funding programs
If you’re looking for the best loan to start a small business, then the answer may lie with
the national authorities.
The South African government, recognising the need for SME funding across the country, has stepped up with several small business funding initiatives.
The Small Enterprise Finance Agency (SEFA) is perhaps the most well-known of these, providing a wide range of small business loans and post-investment support. It targets less mature enterprises that lack collateral or a smooth cash flow.
SEDA, the Small Enterprise Development Agency, is another government agency, but it specialises in non-financial assistance. This includes mentoring businesses with compiling business plans and preparing for market expansion.
Finfind is another option but instead of directly providing funds it acts as a platform that connects business owners with investors. There are over 600 investment options from the public and private sectors to choose from.
Smart tip
If you’re a business owner from a minority group or under a certain age in South Africa, then there are various government-led programs that could help you secure support.
The National Empowerment Fund (NEF), for example, is an initiative that promotes Black economic participation. Launched in 2005, it was approved over R14bn at that time.
The Amavulandlela Funding Scheme, managed by SEFA, offers funding to entrepreneurs with disabilities, an often overlooked minority group.
The National Youth Development Agency (NYDA) is tasked with addressing the challenges faced by the country’s youth population. It focuses on youth empowerment and development and provides various programs and services aimed at promoting entrepreneurship.
7. Credit facilities or revolving loans
Small businesses that are muscled out of traditional bank loans may qualify for a fintech credit facility, which often offers more flexible terms, quicker access to funds, and tailored repayment options.
With this type of credit facility, you can draw down on business funds as needed up to an approved credit limit. Overdrafts and lines of credit fall into this category, and they may also be called revolving loans in that you have the flexibility to borrow, repay, and borrow again without the need to reapply each time.
Securing a credit facility from a traditional lender in South Africa today is often a tough task as many lenders have a complex application process and impose stringent qualifying criteria thanks to a difficult lending climate.
Smart tip
Despite these challenges, SME owners can seek assistance from business advisors, financial consultants, or organisations specialising in SME support.
These entities can guide the types of credit facilities according to their business needs, assist with paperwork, and get help completing the application process.
These advisors do, however, tend to charge a fee, which can be counterproductive for SMEs on a tight budget.
8. SME financing platforms
A heightened need for flexible working capital in South Africa has led to a wave of new business funding in South Africa.
Digital funding and banking platforms provide a range of services for SMEs who are not just looking for fast access to funding but also a place where they can carry out banking tasks and oversee all their financial data in one place.
Lula is a B2B funding and banking innovator that is a leading example of this trend. The company recently polled hundreds of SA small business owners and found that access to working capital is their biggest stumbling block.
In response, Lula committed itself to providing the fastest and most efficient means for SMEs to access funding.
“Once your application is approved, we will have the funds in your Lula bank account within two hours,” says Tom Stuart, Lula’s CMO. “Time is money, and business owners are often stretched between running their business, managing teams, and ensuring that they have the finances on hand to respond to market needs”.
Such quick funding is proving a game-changer for SA businesses struggling in front of a looming recession. As an example, many SMEs must take advantage of favourable currency and fuel rates, which fluctuate from day to day and affect the price of goods. Having cash to hand makes all the difference.
“Sometimes you need financing in a very short space of time. We get this,” says Lula’s CMO. “It’s why we’ve adapted our products by offering faster capital and financial solutions that allow entrepreneurs to focus on growing their businesses instead.”
A growing uptake in new financial solutions like Lula has added to a sense of cautious optimism in the South African business sector in 2024, where shoots of economic growth are predicted to be part of a 3.5% increase across the continent, according to the UN.
SME owners tapping into this vein of small business funding could find themselves riding this wave of economic resilience and propelling their businesses forward during challenging times.
How do I request funding? Sign up to Lula in just minutes
Small businesses trying to work out how to get business funding in South Africa often don’t succeed because of complex paperwork and fear of rejection from the provider.
Lula knows this, which is why we’ve designed our Revolving Capital Facility to take the hassle out of applying.
We believe all hard-working businesses deserve easy access to working capital and enhanced control over their finances – and our flexible funding is designed to give just that.
Once you’ve been approved for a Capital Facility, you’ll have instant access to your pre-approved funds and won’t need to reapply each time you need additional capital.
You only pay a fixed monthly cost on the funds you actually use, and there are no monthly admin fees. We offer flexible repayment terms with no repayment penalties or fees.
We offer funding to businesses that have been trading for at least one year and have an annual turnover of at least R500,000, but if this doesn’t apply to you, you can still benefit from our Free Business Bank Account, which is open to all businesses.
Lula’s free bank account is designed to simplify cash flow for business owners, offering built-in financial management tools and the ability to link other bank accounts so you can view all of your business’s financial data in one place.
Break free from financial constraints with Lula — your answer for how to get funding for your SME in South Africa.
Ready to access business funding in just two hours? Sign up to Lula today and find out how our Revolving Capital Facility can help grow your business.
