South African entrepreneurs have a thriving entrepreneurial spirit, but accessing business funding in South Africa remains a huge challenge.
Political uncertainty and a weakening economy have made a traditionally tough lending market even more difficult for business owners, particularly small to medium enterprises (SMEs).
Just 26% of micro-enterprises (those with two or fewer employees) have access to funding from traditional financial providers, according to a 2024 report from The Aspen Network of Development Entrepreneurs (ANDE), a global network of organisations that propel entrepreneurship in developing countries.
This presents a big problem. Most SMEs without the right funding solutions face a tough battle in achieving their full growth potential.
This guide aims to make finding business funding in South Africa simpler, more accessible, and more effective. Keep reading to find out everything a business owner should know when assessing their financing options, including:
- How important is business funding in South Africa?
- How to get business funding in South Africa: The key sources
- How to apply for business funding in South Africa
- Business funding in South Africa: The path to growth
Struggling to access funding? Explore Lula’s funding options today and find out how we can help you access the business funding that helps you grow your business.
How Important is Business Funding in South Africa?
Business funding is the lifeblood of many small businesses in South Africa that don’t have millions in the bank to survive on, as it provides the necessary capital for innovation and growth.
Access to working capital is even more critical for South African SMEs, as businesses search for financial reserves to deal with unique disruptions like transport strikes and fuel shortages. To add to these challenges, SMEs are victims of a current dip in general lending, with gross loans and advances at less than half of what they were in 2022.
“The small business sector is underserviced, especially in terms of lending. Current lenders tend to focus on banking solutions for consumers or big corporates, which means that small business is still overlooked.” says Trevor Gosling, co-founder and CEO of Lula.
This shortfall in funding options doesn’t just hamper business growth, job creation and economic development, but threatens the immediate future of small businesses.
Knowing how to get business funding in South Africa is, therefore, more important than ever.
How to Get Business Funding in South Africa: The Key Sources
The South African lending market is tough, but there are still several options available to small business owners if they know where to look.
Here’s where to get business funding in South Africa, from traditional lending mechanisms to new types of alternative finance:
1. Traditional lenders
Traditional business loans in South Africa typically come from banks or credit unions. These can be short-term overdrafts, bridging finance, credit facilities, equipment financing, or an old-fashioned lump sum.
Credit unions are member-owned financial cooperatives that typically offer a more personalised service than your average bank.
What’s good about them?
Many borrowers feel more comfortable with banks and credit unions, as they tend to be established, with a longer lending history. They normally also offer lower interest rates, particularly credit unions.
What are the disadvantages?
Traditional lenders typically lend smaller amounts than private investors and development finance lenders (DFIs). Recent data from ANDE shows the average funding range to be a fraction of that of DFIs.
They also have strict lending requirements, including a detailed business plan, a solid credit history and solid financial performance. This explains why banks and financial institutions made up just 6% of South African funding sources in 2024.
2. Government funding programmes
The South African government offers various funding programmes to support SMEs. These initiatives provide financial assistance, mentoring and support to businesses across different sectors. To date, they’ve provided over R900 million to SMMEs. Key players in this space include:
- The Small Enterprise Finance Agency (SEFA). It provides financial products and services to qualifying SMEs and cooperatives.
- The Small Enterprise Development Agency (SEDA). It offers support and development programmes for small businesses, including training, mentorship and market access.
- The Industrial Development Corporation (IDC). This focuses on industrial development, and provides financing and support for large-scale projects and infrastructure development.
- The National Empowerment Fund (NEF). It promotes black economic empowerment by providing funding and support to black-owned businesses.
- Business incubators and other development providers (DFIs). These offer a range of services, including mentorship, workspace and access to networks, to help start-ups and early-stage businesses grow.
What’s good about them?
Government programmes often provide grants instead of loans, which means they don’t need to be paid back. However, these can be difficult to get, as competition is fierce.
They also excel at providing non-financial business support, with over 90% of them offering mentoring, training, and other support, according to ANDE, compared to just 9% for banks.
What are the disadvantages?
Like with banks, applying for government funds can be tedious and time-consuming. Businesses must submit detailed financial information, business projections and other relevant documents to even be considered.
Based on data from ANDE, government agencies also lend the lowest average amount of money of any source.
How do you qualify for SEFA?
SEFA is the most common source of small business funding in South Africa from the government and offers a range of funding options for small businesses.
To qualify, businesses typically need to be registered in South Africa, have a sound business plan, and meet specific industry and ownership requirements, on top of the other criteria listed.
3. Alternative funding sources
The lack of business funding means the South African lending industry has diversified to offer SMEs alternative business finance, including the following options:
P2P lending
Peer-to-peer (P2P) lending offers businesses an alternative to traditional bank loans. Instead of borrowing from a financial institution, companies access funds directly from individual investors or a pool of investors through online platforms. Investors review business profiles and select loans that match their risk tolerance and desired return.
Once a loan is fully funded by multiple investors, the business receives the funds. The business repays the loan, including interest, in instalments through the platform.
P2P lending is typically a faster and more flexible option than traditional bank loans, as it connects businesses directly with the most appropriate lender for them (in theory). Think of it like a business version of a dating app. However, interest rates can be high.
Angel investors
Angel investment is a form of private equity financing provided by high-net-worth individuals or groups to early-stage companies. These investors often bring valuable expertise and networks in addition to capital.
The downside is the loss of control and equity for the business owner. In exchange for funding, entrepreneurs often give up a portion of their company ownership. Angel investors also often have a say in business decisions, which can lessen a founder’s autonomy.
Entrepreneurs looking for funding for a start-up business in South Africa often go down this route.
Venture capital
This is a form of private equity provided by professional investment firms (venture capital firms) that invest pooled funds from various sources, such as institutional investors and wealthy individuals.
Venture capital is often provided to companies that have already gained some traction but need funding to scale. Venture capitalists usually invest larger amounts than angel investors and often take an active role in the company’s strategy and operations.
South Africa is one of the ‘Big Four’ African nations (along with Nigeria, Kenya and Egypt) that received 79% of the continent’s venture capital in 2023, although the total VC amount dropped by 57% due to the global slowdown.
Crowdfunding platforms
Crowdfunding allows businesses to raise capital from a large number of investors through online platforms. This approach can be very effective for innovative or consumer-focused products or services, like tech gadgets, fashion items or creative projects.
However, relying solely on crowdfunding is risky, as there’s no guarantee of reaching the funding goal. Meeting reward fulfillment expectations is also challenging, and it may dilute ownership if equity crowdfunding is used.
Revolving credit facilities
Revolving credit offers businesses a flexible line of credit that can be accessed and repaid multiple times within a specific credit limit.
Unlike small business loans with fixed repayment schedules, revolving credit operates more like a credit card, allowing businesses to borrow and repay funds when they need it up to a certain limit.
Common examples include lines of credit and revolving loans. Revolving credit is great for smoothing the wheels of cash flow, covering unexpected expenses and seizing growth opportunities. However, some lenders may charge high interest rates or have hidden fees, so it’s important to always read the terms carefully.
A worthwhile alternative to a revolving credit facility is Lula’s Revolving Capital Facility, which provides a flexible line of business funding of up to R5 million that can be accessed within as little as 24 hours.
How to Apply for Business Funding in South Africa
Knowing how to get funding for small businesses in South Africa often includes crafting a winning application.
A well-structured business plan is a sensible way to secure funding. When done well, it’s not just a document but a persuasive narrative that outlines your business vision, market opportunity and financial projections.
A strong financial forecast is a big part of this. A forecast demonstrates your understanding of your business’s financial health and your ability to manage finances and cash flow. Lula offers a powerful cash flow management tool – Lulaflow that simplifies the process of cash flow forecasting.
For outside investment, investors look for businesses with a clear path to profitability. Key financial ratios like profit margins, debt-to-equity ratios, and cash flow metrics tell a story about your business’s performance, and knowing these makes your business a better prospect for potential funders.
Business plans and financial projections are useful for lenders to learn more about their borrowers, but a new wave of alternative funding sources is doing away with the paperwork to help small SA businesses get the funding they need. These platforms have a simple digital application process, fast approval, and just require a basic level of turnover instead of reams of documents.
Business Funding in South Africa: The Path to Growth
Securing business funding in South Africa remains a formidable challenge for many entrepreneurs. Traditional lenders like banks and credit unions may offer established businesses options, although their stringent requirements often exclude a significant portion of SMEs.
Government funding programmes provide an alternative, offering grants and loans to eligible businesses. However, competition for these funds is fierce, and the application process can be time-consuming.
Alternative financing sources like P2P lending, angel investment and crowdfunding have emerged to fill the funding gap. These options offer greater flexibility and accessibility and can help put your business on the path to growth.
Lula is one example of an alternative funding provider, offering South African SMEs quick access to business funding in the form of a Capital Advance or Revolving Capital Facility. We don’t need to see business plans, credit reports, or what your business will be like five years down the line: just complete our easy online application and put your business on the path to flexible long-term financing.
