The fourth Vumela fund, worth R200 million and launched on Tuesday by FNB, aims to provide alternative financing to 150 black-owned businesses and create 1,000 jobs.
The commercial banking division of FNB created the Vumela Enterprise Development Fund in 2009 in collaboration with the venture capital and private equity firm Edge Growth. Vumela, which is isiZulu for “allow” or “enable,” seeks to develop novel financing approaches and aid so-called “missing-middle” black-owned small businesses.
An accelerate loan and a venture debt loan are the two instruments that make up the recently created Vumela 4.0 fund.
Loan acceleration
In the small and medium-sized firm (SME) sector, where tiny businesses are frequently shut out owing to a lack of investment preparedness or performance concerns, among other things, the accelerate loan is intended to fill the gap in seed or early-stage financing.
Businesses with a yearly revenue of less than R50 million can apply for the accelerate loans at a 5% interest rate. Beneficiaries can receive a refund of their interest payments at the end of the repayment term “if they honor repayment and governance obligations,” effectively making the facility zero-cost financing.
CEO of Edge Growth, Richard Rose, said at a media briefing, “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”.
risky debt
The venture finance product targets more South African scale-ups with a focus on technology without compromising founder equity.
“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.
Despite the importance of safeguarding depositors, FNB Commercial Head Gordon Little noted that the fund’s beneficiaries are not required to provide collateral or personal suretyship as part of the eligibility requirements.
“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.