Grant or Loan? How to Fund Your Expansion in South Africa

Emile Strydom

1 day ago

2 min read

Most South African businesses planning an expansion ask the same question: should we apply for a dtic grant, or take a loan? The honest answer is that the strongest projects usually use both. Here is how each one works, where they differ, and how to combine them.

The Short Answer

Grants do not have to be repaid, but they only cover part of the cost, come with strict rules, and pay out after you spend.
Loans are repaid with interest, but they can fund most of a project, including costs a grant will not cover.
Many projects use a grant to reduce how much they need to borrow, and a loan or own funds for the rest.

How a DTIC Grant Works

Programmes such as the Manufacturing Support Programme (MSP) and the Black Industrialists Scheme (BIS) are cost-sharing grants. The dtic pays back an agreed share of qualifying costs, such as machinery and buildings, against milestones.

You usually have to apply before you buy the equipment or start the project
You spend first and claim the grant back, so you still need cash or finance up front
Conditions apply, such as B-BBEE level, jobs and keeping the assets in use

How a Development Finance Loan Works

Development finance institutions (DFIs) are state-backed lenders set up to fund growth and jobs. The main ones are:

IDC: funding for manufacturing and other productive sectors, typically from R1 million
NEF: funding for black-owned and black-managed businesses
SEDFA: loans for small businesses, typically up to about R15 million

A DFI will look at your ability to repay, your own contribution and the security you can offer. Expect a full business plan, financial projections and a due diligence process that can take several months. See our business loans page for more.

Side by Side

Repayment: a grant is not repaid; a loan is repaid with interest
How much: a grant covers a share of qualifying costs; a loan can cover most of the project
What it pays for: grants cover specific qualifying costs; loans are more flexible, including working capital
Timing: grants pay out after you spend; loans pay out before
Conditions: grants carry programme rules; loans carry repayment terms and security

Why the Best Projects Use Both

The grant reduces the amount you need to borrow, which lowers your repayments
A loan or bridging facility covers the costs while you wait for grant claims to be paid
A well-prepared grant application and a lender’s business plan share most of the same work, so doing them together saves time

Five Questions to Ask Before You Choose

Have we spent any money on this project yet? (If so, a grant may no longer be possible.)
How much can we put in ourselves?
Can our cash flow carry a monthly loan repayment?
Do we meet the B-BBEE and ownership rules for the grant we want?
When do we need the money, and can we wait for a claim to be paid?

How We Can Help

We match your project to the right mix of grant and finance, prepare the business plan and financial model, and manage both applications. Not sure where to start? Take our 2-minute eligibility check or get in touch for a free assessment.