BEE Partner, South Africa Economy Watch

As a result of historical circumstances, Black people wanting to get involved in business usually have limited access to finance.

There are relatively few empowerment companies who want to buy equity stakes in small business. It is also unlikely that a business owner or employee has the knowledge to obtain empowerment funding to buy the equity.

If Black shareholding is a business necessity, the business owner would benefit greatly by researching methods of obtaining empowerment finance for the purchase of small business. Various state funds have been set up for this purpose, while retail banks also offer empowerment loans.

In the small business environment, vendor financing is often used. Vendor financing refers to the seller financing the purchaser’s participation through a loan or equity participation. The investment should be secure because the vendor financier knows the ability of the business to repay the loan and would receive a market interest rate for advancing the loan. The loan is generally secured over the shares sold, so the seller’s risk is limited to the strength of the business being sold.

Here are a few suggestions for alternative sources of finance obtainable with the specific purpose of facilitating ownership transactions:

* The easiest way is through the banks, which in itself gives an indication of how difficult it is to find financing for deals. If the business is sound and the owner has a strong relationship with the bank this may be an effective route.

* It is possible to use Khula for financing. Although this is a more likely source than a bank, it is an onerous application and a time- consuming task for a small business owner.

* Mobilising funds from other enterprises in terms of contributions to enterprise development is a more creative use of funding sources. It can be very effective, but is not easily come by.

* Organisations such as Business Partners may be of assistance in this regard.

The National Empowerment Fund is also an option. They usually provide financing for amounts ranging from R500 000 to above R3 million, specifically to Black people.