SMALL ENTERPRISE FINANCE AGENCY (SEFA)
Small Enterprise Finance Agency, commonly known as SEFA, was established in 2012 as a result of the merger of South African Micro Apex Fund, Khula Enterprise Finance Ltd and the small business activities of IDC.
SEFA‘s mandate is to foster the establishment, survival and growth of SMMEs and contribute towards poverty alleviation and job creation.
SEFA’s Direct Lending Products:
These are loans that SEFA provides directly to Small and Medium sized Enterprises as well as co-operatives operating in all sectors of the economy. The facilities range from a minimum of R50 000 to a maximum of R5 million.
SEFA provides the following loan products:
Start-loans: Loans offered through Direct-Lending to survivalist non-financial co-operatives for working capital; e.g. for small orders from government departments, municipalities and private sector.
Business Loans: Loans offered through Direct Lending to all types of co-operatives for funding enterprise projects e.g. purchasing production machinery and working capital.
On-lending loans: Loans offered through Wholesale Lending to Financial Co-operatives and Co-operative Banks to on-lend to their members.
Institutional Strengthening: SEFA provides the following institutional strengthening support; R500 000 grant for Financial Co-operatives start-ups aimed at subsiding operational costs. Mentorship is also provided to non-Financial Co-operatives. This is an indirect expenditure as it is paid directly to the Mentor.
This is a short-term loan that is provided to an enterprise to finance working capital needs (i.e. stock and/or operating overheads). This facility is only provided to businesses that have secured firm contracts (orders) from their clients. It is only applicable in business to business transactions.
This type of financing allows an enterprise to meet current obligations by providing immediate cash flow. The loans are short-term (up to 1 year) and may be backed by some form of collateral such as sureties, cessions, etc.
This is a loan with a specific amount, which has a specified repayment schedule and a floating or fixed interest rate. A Term Loan is used to finance assets that have a medium to long term lifespan (e.g. machinery, fixtures and fittings, vehicles, office equipment). Term Loans can also be used for start-ups, expansions and acquisitions of businesses. The loans are usually repayable between 1 and five years
Structured finance is used to finance businesses that require funding that fall outside the parameters of term and bridge loan facilities. The support is provided by way of a debt facility but mainly tailored around the requirements of the project (tailored finance). The loan can be taken over a period of maximum five years.
Wholesale Lending Products:
Through its wholesale lending, SEFA provides facilities (debt/equity) to intermediaries, joint venture, partnerships (specialised Funds) and other collaborative relationships to extend SEFA’s reach of making funding available to small businesses across South Africa.
The target market is survivalists, micro, small and medium businesses including co-operatives (SMMEs) falling in the following funding gap:
Survivalists and microenterprises – loans between R500 and R50 000.
Small Enterprises – loans between R50 000 and R1 million.
Medium enterprises – loans between R1 million and R5 million.
Micro-Finance Intermediaries – MFI:
SEFA provides facilities to MFI to on-lend to micro and survivalist businesses requiring funding of up to R50 000 for the purpose of growing their income and asset base. In special circumstances and based on proper credit vetting and investment policy procedures the amount can be up to R100 000 per single business/owner(s).
Retail Financial Intermediaries – RFI:
SEFA engages with RFIs who provide financing solutions to small and medium sized businesses within specific markets and/ or sectors that are not serviced by SEFA’s direct lending activities.
The business loans will be flexible and structured to meet the financing needs of the RFI. Various equity instruments including self-liquidating may be considered as part of the investment strategy into the RFI. The transactional limit for first-time borrowers will be dependent on need up to R100 million or in line with SEFA’s counterparty limit. This may be increased with approval from the shareholder.
Specialised Funds – SFI:
These joint ventures/partnerships are basis for SEFA’s wholesale proposition. The synergistic partnerships of cooperation, coordination and collaboration will not only reduce the risks associated with the market but more importantly for both government and the private sector to take responsibility in addressing the challenges faced in enterprise development.
The purpose of the scheme is to issue a range of credit guarantee products to lenders (commercial banks and other financial institutions) for SMME borrowers whose access to finance is impeded by the fact that they do not have collateral required by the lenders. SMMEs would normally require finance to establish, expand or purchase existing businesses. The three broad categories of indemnities are available are individual, portfolio and institutional indemnities.
Land Reform Facility – RFI/BFS/SF:
The Land Reform Empowerment Facility (LREF) is a Broad Based Black Economic Empowerment Fund capitalised by the Department of Rural Development and Land Reform and supported by the European Union. LREF is a wholesale financing facility through which SEFA lends money to commercial banks and other reputable agricultural lenders for on-lending to land reform beneficiaries.
The aim of LREF is therefore to broaden the control, management and ownership by black South African citizens in land-based high-value income generating assets in the agricultural sector. To increase the commercial success of LREF-funded projects, SEFA assists these projects with training and skills development interventions using a training grant.
Post Loan Business and Institutional Strengthening Support:
The purpose of the Post Loan Business Support and Institutional Strengthening is to provide non-financial support to SMME businesses via the RFI/BFS/SF and also directly to the intermediaries. In the provision of these services, SEFA will leverage the resources of other government agencies such as SEDA, Productivity SA and the others.
Post Loan Business Support for SMMEs:
The Post Loan Business Support programme is designed to provide business support services to enterprises during the life cycle of the business from early stage (growth/development/compliance mentorship) as well as the decline phase (turnaround specialists). This service is only provided to small businesses that have benefitted from loan facilities provided by SEFA and its financing partners. The programme will be facilitated through the Direct Lending Division and will allow the Wholesale Lending Division to access such support as and when needed. Pre loan support will be considered if and when required using SEDA.
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