The goal is to demonstrate to the local investment community that small businesses with innovative and impactful business models can invest.
The SAB Foundation has announced the launch of its R88 million Financing for Impact Fund in partnership with Lead Impact Capital and the National Treasury’s Jobs Fund. The purpose of the Impact Fund is to provide affordable funding to qualified entrepreneurship program alumni.
SMEs are generally praised as the job creators of the future, but there is a major obstacle to this theory, because job creation depends on business growth, and business growth often requires finance.
Through its work with entrepreneurs over the years, the SAB Foundation has become deeply concerned about the funding gap that exists in South Africa. Small businesses often don’t have much collateral and are considered high risk by the investment community.
“This perceived risk translates into businesses not qualifying for finance, or when they do, interest rates can often exceed 20%, with some short-term cash flow lenders charging interest rates of up to 30%,” said Bridgit Evans, Executive Director. from the SAB Foundation. “This leads to high default rates, further discouraging investors to lend to this market, which creates a vicious cycle.
“It is understood that investors have a fiduciary responsibility to protect their assets and many are negatively affected by non-payment of loans. If South Africa really wants to grow the economy and create jobs, we need to find innovative financial products that do not offer high interest rates to SMEs.
Evans continues: “Together with the Jobs Fund and LEAD Impact Capital, we are trying a model to overcome this, by reducing the risk in three ways. First, if possible, the entrepreneur must give a contract to the Foundation. Second, the Impact Fund is supported by grant capital, allowing interest rates remain affordable between prime minus 2 and prime plus 3.
“Finally, when most financiers only meet business owners for the first time when they come to borrow money, this Fund only lends to entrepreneurs who SAB Foundation has spent at least two years of guidance and training,” he explained. “This gives us the advantage of using other metrics to assess the entrepreneurial character and the possibility of honoring the loan.
“Eligible candidates are graduates of SAB Foundation’s Tholoana Enterprise Fund, Tholoana Enterprise Program, Social Innovation and Disability Empowerment Awards and Social Innovation Fund. [They must be] looking to grow the business and create new employment opportunities,” explained Evans.
“The finance can be used for asset and equipment financing, growth financing or purchase orders and cash flow financing. The size of the loan will range from a minimum of R200 000 to a maximum of R10 million and the entrepreneur must be able to provide sufficient documentary evidence to support the amount of the loan applied for.
“South Africa has a comprehensive company and supplier development ecosystem, more than any other country,” he said. “We need to find a way to build a bridge between this community and mainstream investors, because it is in everyone’s best interest to maximize business growth.”
Najwah Allie-Edries, Head of the Employment Fund, said: “We are working with the SAB Foundation to address the key funding gap affecting SMEs, particularly the so-called ‘missing middle’. These companies are generally too small to access funding from traditional and very large financiers. to access microfinance options Through Jobs Fund’s partnership with Yayasan SAB, SMEs will secure the capital and support they need to drive company growth and create more jobs.
With the Financing for Impact Fund, 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 can invest.
“If we can demonstrate that all loans are repaid, we will be able to use this as a model to attract more money, so that entrepreneurs with real growth and the potential to create jobs are not held back due to lack of access to affordable capital. ,” concluded Evans. “Goal ours is to create a model that can be measured and replicated by others.”
About the SAB Foundation
Founded in 2010, the SAB Foundation provides grants to small, medium and micro enterprises in order to contribute to the economic and social empowerment of historically disadvantaged people through entrepreneurship development. The main beneficiaries of the SAB Foundation are women, youth, people with disabilities and people living in rural areas, from low-income backgrounds. More than R534 million has so far been invested in social innovation, disability empowerment and SMEs.