Their struggle shows that the SEFA guarantee process, with all its faults, does hold finance opportunities for entrepreneurs who try hard enough. SEFA is the government’s Small Enterprise Finance Agency. One of its services is a credit indemnity scheme through which it guarantees a business loan on behalf of a business that does not have enough collateral to cover the loan.
Stephen and Fuzi met at university and they co-own Ilali Holdings. They are developing software that enables unskilled labourers, even illiterate ones, to interact with the IT system of an organisation. “We’re creating a cartoon-like interface for workers to be able to simply touch pictures on a screen so that they can use it even if they can’t read. The system also helps them to understand those pictures. Our interface is also going to talk to them in their own language. So for instance if they’re over-revving the machine, and they’re a Xhosa-speaking person, the system is going to shout at them in Xhosa saying ‘Whoa, stop over-revving’.”
They passionately believe that their system can save the South African mining and manufacturing industry billions by reducing equipment maintenance and wear and tear. But the 2 years spent so far on developing the idea had absorbed all their resources, including Stephen’s house which he had to sell.
They admit that the idea is so green and under-developed that no bank would normally look at it. In fact, the money Ilali Holdings needs is to take the idea through a test period—there is not much talk of sales or revenue yet.
Normally, only Venture Capital investors would be interested in this type of enterprise—if you’re lucky. But Stephen and Fuzi felt that the equity shareholding required by Venture Capital lenders was too high and would hamper their flexibility going forward. They studied all the government incentives for projects such as theirs, and came across the Support Programme for Industrial Innovation (SPII) of the Department of Trade and Industry. They thought this would be a good match, but SPII offered a matching grant, in other words, SPII would give a rand for every rand that they put down. The problem was that Stephen and Fuzi did not have 50% of the money required, so this option didn’t help them.
They then approached the Small Enterprise Finance Agency (SEFA), who offered the only chance of borrowing money with no collateral and without having to sell their future to Venture Capitalists.
Through the epic struggle to convince the banks, Stephen and Fuzi learned a few things:
An original, untested idea is the hardest to sell to the banks. You’d have an easier time convincing them to lend you money to buy a franchise.
Business owners must be “confident enough to go to the banks and if they get rejected, have courage enough to say ‘maybe I can do something a little different to make it acceptable to the bank’.”
You need to educate bankers about your business. This is a really critical point to remember. Lenders have not necessarily been exposed to all the industry sectors and therefore might not understand how your business operates and the value that it brings to its sector. Make sure that any business plan or application clearly states the value of the business and how it impacts on its specific sector.
Don’t give up!
Finfind provides its services free of charge to businesses seeking finance. Our primary purpose is to link SMEs with all the relevant finance providers and finance products that match their funding needs. As a matching service we are not required to be a registered finance provider as we do not loan money directly.