So, you have a business plan that you think will make you the next Patrice Motsepe?
It could be in manufacturing, mining or the services sector, but the initial investment required is probably a major stumbling block to making this dream a reality.
Chances are you don’t have a rich uncle who can lend you millions to buy assets and set up the infrastructure required to begin mining or production at scale.
However, if your business plan is sound and has the potential to kick-start a sustainable enterprise that can create jobs, the Industrial Development Corporation (IDC) could become a valuable partner on your journey.
A PROJECT IN PARTNERSHIP WITH THE IDC
David McGluwa, who heads operations at head office and regions across the country, unpacked how entrepreneurs with dreams of making it big in the sectors that the IDC funds can go about presenting a business case for financial and non-financial support.
The first tool to have when applying for funding from the IDC, he says, is a viable business plan.
“We don’t have an application form so our application is a business plan.”
He said the problem the IDC often experiences with first-time applicants is the submission of business plans that are drafted by external “experts” who know very little about the entrepreneurial process or what the business aims to achieve. This ends up frustrating the funding process.
“You end up going up and down because when you engage with the owners who want the money, there is not a link there. We find a lot of these consultants who draft business plans do it from MBA books, cut-and-paste and Google; but it doesn’t speak to the heart of the business.”
If the business plan is workable and paints a picture of a business with true potential, the process moves to the second phase. A basic assessment is done on the application to determine whether the business has economic merit and whether it will, in the long run, be able to repay the loan advanced by the IDC.
Four key components are assessed to determine this:
- Management team (What is their background? Who are they?)
- Market analysis (The size of the market. Where will you get orders from?)
- Technical aspects (The operational side. If it’s a manufacturing business, does it have the right equipment? Where will it get raw material? What volumes can it produce?)
- The financial model at a basic level (Will the business be able to repay the loan and will it be sustainable?)
The IDC also has a business support programme that provides advice and support for entrepreneurs before their funding request is awarded and afterwards to assess whether the capital injection has made the business viable and what additional help is required.
Pre-investment support involves a number of facets, including linking applicants with experts in the relevant business sector to provide guidance on issues such as access to markets and the correct machinery to use. The post-investment arm assesses the business’ order book once in operation and its finances to determine if it can cope or needs more money to expand operations.
The Pre-Investment Business Centre is based in Gauteng at IDC headquarters in Sandton. “They have a walk-in centre at the office and they assist people with funding enquiries and take it up to the basic assessment stage.”
Entrepreneurs can also access these services at regional offices located in each province. McGluwa said the minimum IDC business loan was R1 million.
There is no limit to how much a business can receive, but if it’s more than R1 billion, it is likely that co-funding options with other financing institutions will be explored.
A total of R4.5 billion has been made available over a period of five years to support youth entrepreneurs who have bankable projects in sectors that the IDC funds.
McGluwa said while the corporation has funded some astute young businessmen who have gone on to create successful enterprises, South African youth were generally prone to starting businesses in areas they feel comfortable in, but which the IDC would not consider for funding.
These include car washes, shisa nyamas or the taxi operating business.
“Most young people have never had exposure to a manufacturing company, so it’s very difficult for them to start a business in an area that they have not been exposed to. What they know from growing up – tuck shops or carwashes – we see a lot of those enquiries coming through.
“We sit with a lack of innovation among young people. It’s more like: ‘my neighbour has this business, I must also have one’; instead of looking at a market gap [and determining] ‘what can I come up with to close that market gap?’”
However, he is excited about the drive led by the IDC and the department of trade and industry to create new black industrialists.
McGluwa said new black industrialists were investing in sectors that were driving the economy, often in spaces where few black business people have operated before.
“We are seeing black people in the active industrial sectors that drive the economy of South Africa. They are moving into that space, and that is the exciting part.
“It has exceeded all our expectations.”
The IDC has created an online portal that makes it easy for those seeking funding to submit application forms and track every step of their application process.
Applicants must log onto idc.co.za and proceed to the “apply for finance” function, where they can submit their application.
Once they have submitted the application, they will receive a tracking number that they can use to track the process and view all the stages that the application goes through, from assessment through to due diligence. The portal has been available since May 1.
David McGluwa encourages people to make use of this facility. He said it would assist to speed up the application process. Potential IDC clients receive SMSes that alert them to what information is required of them throughout the assessment process.
“Sometimes a client waits for information, but they do not know that the IDC is also waiting for them to give additional information. That is where we sometimes experience delays. This portal will assist him or her to track their respective applications,” he said.
McGluwa says it normally takes between one and three months to go through the application stage, assessment and disbursement of the granted loan.