By: Anna Majavu
The Industrial Development Corporation (IDC) could increase its loans to small businesses from R600-million in 2022 to over R1 billion this year. “We want to push out R20 billion-plus into the economy every year in the entire IDC. If I have transactions over R1 billion to write, I will write them. We are actually looking for good projects,” Manoj Seonath, head of the IDC’s Small Business Finance Unit told Vutivi News.
The IDC is also set to finalise a push towards more local solar panel manufacturing, and with domestic and business demand for solar energy systems sharply increasing, this will benefit green energy SMEs that intend to expand. Formed about three years ago, the unit provides loans of between R1-million and R20-million to small and medium enterprises. It is housed in the IDC’s regional offices in all the major cities to bring it closer to SMEs who need help with their applications.
As a self-sustaining organisation that did not receive an annual cash injection from the government, the IDC would only lend money that it was certain the borrower would be able to pay back, said Seonath. He said small businesses needing loans of between R1m and R20m should visit the IDC before they developed their business plans to get the best advice on whether their business was viable.
He added that small businesses should be aware that they would usually have to fund about 40% of their business themselves. “If you have 100% debt, all your cash flow is going to be used to pay the IDC, and for start-ups, it is not affordable.” However, the unit is also intent on supporting black industrialists who may not necessarily have 40% equity to put into the business and will source grants from other government agencies and investors like the SA SME fund.
Township-based SMEs seeking funding of R1-million, whose owners don’t have R400,000 in equity, might also qualify for an additional grant from the IDC’s partnership programme. The unit would also involve small businesses in the IDC’s SME Connect programme which linked small manufacturers with large corporates and export markets, “especially if they are making products that large corporates buy”, Seonath said.
He said small manufacturing businesses should be wary of applying for IDC funds based on verbal promises from retailers to buy their products. The IDC required letters of intent and contracts and they spoke to retailers to establish if they would make good on their promises to buy a new product. SMEs should also approach the IDC immediately if they lose contracts or if their major buyer goes into liquidation. “Sometimes the IDC will put more money into a business to diversify it. The IDC will stand with you through tough times but will take a hard view if someone tries to defraud the IDC,” he said.
The best advice Seonath could give to SMEs who were rejected by the IDC for loans was to find out exactly why they were turned away and fix the problems in their business plan. The IDC only existed to fund businesses and there was no reason it would ever turn away a viable business plan, told Vutivi News. “We have seen many businesses succeed and fail. When the IDC shies away, do some introspection and ask why. If a financier does not want to fund your business, try to understand what risks the IDC is seeing that you are not seeing,” Seonath said.