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Tips, advice, and information for South African business owners

07 Sep

Funding Big Deals For SMEs

Small enterprises have many different funding options, including banks, specialist SME lenders, and development finance institutions (e.g. the National Empowerment Fund). These are fine for relatively modest asset finance and working capital requirements, but what if you need substantial funding (e.g. R100m+) for an opportunity that far exceeds their risk appetite and funding limits?

One option is to segment your capital requirements and parcel them out to multiple investors based on their particular preferences and criteria. However, while doable, the effort and timing involved with coordinating a mix of different funders is several orders of magnitude greater than negotiating with just one.

Alternatively, you could reach out to investors who do have an appetite for outsized deals, like venture capitalists and private equity firms. If you have a strong leadership team, track record of success (at a reasonable scale), and a well-validated market opportunity, then there’s a deal to be made.

Another less-familiar option are international development banks, like the CDC Group and FMO. These are particularly relevant for projects with ties to their home territories. For example, a SME partnering with an industry giant like BMW could present a compelling pitch to DEG due to the German connection.

The key, as always, is understanding your audience’s agenda and adjusting your proposal accordingly. Creditors need to protect their downside, so prioritise repayment confidence. Equity investors want to reap the upside, so highlight potential investment returns. And development finance institutions are bound by social impact mandates, so emphasise job creation and community upliftment.

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