On Tuesday big four bank FNB launched its fourth Vumela fund, worth R200 million, which aims to offer alternate financing to 150 black-owned businesses and create 1 000 jobs.
FNB’s Vumela Enterprise Development Fund was established in 2009 by the lender’s commercial banking unit, in partnership with venture capital and private equity firm Edge Growth. Vumela – an isiZulu word meaning to allow, or enable – aims to create innovative financing models and support so-called ‘missing-middle’ black-owned small enterprises.
The newly launched Vumela 4.0 fund comprises two products: an accelerate loan and a venture debt loan.
The accelerate loan is aimed at addressing the gap in seed or early-stage financing in the small and medium-sized enterprise (SME) sector, where small businesses are often left out due to a lack of investment readiness, or performance risks, among other factors.
The accelerate loans are offered at a 5% interest rate to businesses with a yearly turnover of R50 million and below, and at the end of the repayment term beneficiaries can get a rebate of their interest payments “if they honour repayment and governance obligations” – essentially rendering the facility zero-cost funding.
“This is a product we want to be accessible quickly, for small amounts of funding, for the use of working capital [or] operational expenditure; it might be fulfilling a purchase order, buying some stock, [or] employing a few people quickly. We’ve got R100 million to deploy in this space,” Richard Rose, CEO of Edge Growth said at a media briefing.
The venture debt product is targeted at more tech-enabled South African scale-ups, without diluting founder equity.
The loan is priced at a fixed rate of between 10% and 15%, and includes the option for the funding entities to acquire a portion of the equity, of between 1% and 2%, to compensate for the early-stage risk they would be taking.
“On the venture debt side, this is a four-year term loan that we’re providing into the venture capital (VC) market, specifically to companies that are VC backed. They have either already been backed by a venture capital fund manager, or they are about to raise a funding round,” Rose said.
FNB commercial head Gordon Little said while protecting depositors is key, requesting collateral and personal suretyship from the fund’s beneficiaries doesn’t form part of the qualifying criteria.
“Not in this space … there’s a banking mandate where we’ve got to protect depositors. Here we’ve got a fund structure that has a different risk appetite,” said Little.
“I don’t think collateral is top of mind for us … We’re trying to make sure that we’re funding for what’s needed in that space. In many instances these are bootstrapped businesses,” Little explained.