R88 million entrepreneurial fund set up to support entrepreneurs

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The aim is to demonstrate to the local investment community that small businesses with innovative and impactful business models are investable

The SAB Foundation has announced the launch of an 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 financing to qualified alumni of its entrepreneur programmes.

SMEs are largely lauded as being the job creators of the future, but there is a major stumbling block to this theory, because creating jobs relies on business growth, and business growth often requires finance.  

Through its work with entrepreneurs over many years, the SAB Foundation has become very concerned about the financing gap that exists in South Africa. Small businesses often don’t have much collateral and are perceived as high risk by the investment community. 

“This 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%,” says 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.

“It is understood that investors have a fiduciary responsibility to protect assets and many have been negatively impacted through the non-repayment of loans. 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.” 

Evans continues: “Together with Jobs Fund and LEAD Impact Capital, we are testing a model to address this, by mitigating risk in three ways. Firstly, wherever possible, entrepreneurs must cede contracts to the Foundation. Secondly, the Impact Fund is underpinned by grant capital, allowing interest rates to remain affordable at between prime minus 2 and prime plus 3.

“Lastly, while most financiers only meet the business owner for the first time when they come to borrow money, this Fund is only lending to entrepreneurs that SAB Foundation has already spent at least two years mentoring and training,” she explains. “This offers the advantage of using other metrics to assess the entrepreneurs’ character and their likelihood of honouring the loan.

“Eligible candidates are graduates from the SAB Foundation Tholoana Enterprise Fund, the Tholoana Enterprise Programme, the Social Innovation and Disability Empowerment Awards and the Social Innovation Fund. [They must be] looking to grow their businesses and create new employment opportunities,” explains Evans.

“The finance can be used for asset and equipment financing, growth financing or purchase order and cash flow financing. Loan sizes will range from a minimum of R200 000 to a maximum of R10 million and entrepreneurs will need to be able to provide sufficient documentary proof to support the loan amount applied for.

“South Africa has a very comprehensive enterprise and supplier development ecosystem, much more so than many other countries,” she says. “We need to find a way to build a bridge between this community and mainstream investors, because it is in all of our best interests to maximise business growth.” 

Najwah Allie-Edries, the Head of the Jobs Fund, says: “We have partnered with the SAB Foundation to tackle a key funding gap that affects SMEs, specifically those referred to as the ‘missing middle’. These enterprises are generally too small to access funding from traditional financiers and too large to access micro finance options. Through the Jobs Fund partnership with the SAB Foundation, SMEs will secure the capital and support they need to drive enterprise growth and further 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.”

About the SAB Foundation

Founded in 2010, the SAB Foundation provides grant funding for small, medium and micro-sized enterprises in order to contribute to the economic and social empowerment of historically disadvantaged persons through entrepreneurship development. The SAB Foundation’s primary beneficiaries are women, youth, people living with disabilities and people living in rural areas, from low-income backgrounds. More than R534 million to date has been invested in social innovation, disability empowerment and SMMEs.