DEVELOPMENT LOANS, EQUITY, GRANTS AND TAX ALLOWANCES
Various government departments offer financial support programs to promote the goals of their strategic economic policy programs or masterplans. This support is traditionally in the form of non-repayable cash grants, calculated as a percentage of the capital requirement of the applicant's proposed new or expansion project. However... the trend appears to be away from pure cash grants, towards blended finance schemes. This method offers a more complete funding solution with less risk of failure because applications are subjected to proper due-diligence investigation by the financier. This investigation requires a more in-depth knowledge of the industry or sector in question, therefore blended finance programmes are usually managed by development finance institutions (DFI's). The result is that nowadays some support programmes are offered by the DFI's and not by the government departments. There is also a possibility of blended finance being offered by private commercial institutions such as commercial banks, with government departments supplementing it with grant funds. This may become more prevalent in future.
What is a Development Finance Institution (DFI)?
Several government owned entities exist that focus on the financing of new or expanding commercial ventures in a variety of sectors of the economy. Instead of relying on collateral security and proven cash flow resources, they tend to perform due-diligence investigations to verify the economic merit of proposed new or expansion projects. These entities are referred to as Development Finance Institutions (DFI's).
What is blended finance?
Blended finance is a business loan of which a portion is converted to a non-repayable grant. The proportion that is converted differs from program to program. In some cases, the interest cost on the remaining loan portion is also subsidised or even scrapped.
Where to find information
Information about these programs can be found on the websites of the various departments and DFI's, or by consulting a specialist such as Dectra. Subscribe to Dectra's monthly newsletters to stay up to date with the latest developments.
Links to DFI's and Government Departments who offer support programmes
• Development Bank of Southern Africa (DBSA)
• IDC (Industrial Development Corporation) special schemes
• Land Bank
• National Empowerment Fund (NEF)
• Small Enterprise Finance Agency (SEFA)
• The Jobs Fund
• DTIC (Department of Trade, Industry and Competition) - financial assistance
• Department of Tourism
• Department of Science & Innovation
• Department of Mineral Resources & Energy
• Department of Higher Education and Training
PROJECT FINANCIAL SIMULATOR AND BUSINESS PLAN WRITING
Dectra models the 4- to 7-year financial implications of new projects on our simulator to help clients plan properly. We also use this tool when compiling applications for finance or blended finance from DFI's.
WORKING CAPITAL ON TAP
Dectra has an association with an independent finance house that offers invoice discounting and order financing facilities. Clients sell one or more already issued sales invoices at a discount and receive payment immediately. Similarly, new orders can be sold to raise working capital to execute those orders. These methods are widely used by businesses who are unable to obtain bank loans due to lack of collateral security or lack of a sufficient track record. The facility is flexible and is limited only by the number of invoices you have available to sell. Although people sometimes think it is expensive, it is cheaper than the discount that your customer would typically demand for cash settlement.
