It can be very frustrating to be approved for finance, but then not be able to access the money due to a lack of collateral. Fortunately the Small Enterprise Finance Agency (SEFA) may be able to help you! The national government, in its bid to encourage entrepreneurial growth, set up the Khula Credit Indemnity Scheme which is managed by SEFA. The aim of the Khula Credit Indemnity Scheme is to assist in providing credit guarantees to small businesses that have applied for finance at the large banks.
Another option is the Absa Thembani International Credit Fund. This fund is there to help small businesses that do not have collateral. The Fund provides a letter of guarantee to the bank you will be borrowing the finance from. Details of how this fund works are provided below.
This scheme is only accessible through the lenders that SEFA has partnered with. Currently these are First National Bank and Standard Bank of South Africa.
You, as an individual cannot approach SEFA directly to access the Khula Credit Indemnity Scheme. Rather, you must apply for a loan through one of the large banks and then request the bank to apply to SEFA for the Credit Indemnity Scheme.
The scheme does not provide guarantees for 100% of the collateral the bank requires for the business loan. The business owner will have to make some contribution towards the collateral amount, however, this can vary from 10% to 90% depending upon circumstances.
The Khula Credit Indemnity Scheme funds amounts from R10 000 to R3 million and it will be up to the bank to request the guarantee amount from the scheme.
Over and above the lending criteria of the bank, SEFA also requires that the following terms are met:
1. The owner must be involved in the day to day running of the business on a FULL TIME basis.
2. The business activity (that is, the work it does) must be situated in South Africa.
3. SEFA needs to be convinced that the business is able to repay the loan.
4. SEFA only funds for profit companies that are economically viable.
5. The business owner with controlling interest (shareholding) in the company applying for the loan, must be a South African citizen.
6. The borrower must have proven and sufficient entrepreneurship skills as well as the knowledge, skills and experience directly related to the services offered by the business.
7. The entrepreneur must provide their own contribution towards the business loan.
If you are applying for a loan from one of the banks SEFA has partnered with to offer this product, then make sure you request the bank to access the Credit Indemnity Scheme. Sometimes you can encounter employees who are not familiar with the scheme. If this is the case, insist that they find someone within their organisation who understands how the Credit Indemnity Scheme works.
Absa Thembani International Guarantee Fund
This fund is there to provide collateral guarantees for previously disadvantaged small business owners. You would need to apply for a loan and be approved for finance by one of the major banks. Then, you can approach Absa to fund the collateral guarantee for this loan. They only provide guarantees for collateral amounts of R500,000 to R10 million.
If you are approved for the guarantee, you will be charged an initial fee of .05% of the value of the collateral and an interest rate of 3.3% of the collateral amount.
Some of the government funding agencies, for example IDC and NEF, will try to work with you to reduce the amount of collateral required for the business loan. Make sure you ask whether they can help you if you are lacking the collateral needed for the loan.
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.