In the world of Enterprise and Supplier Development (ESD), much of the focus has traditionally been on empowering small and medium-sized enterprises (SMEs) through access to services like accounting, bookkeeping, and marketing support. These are undeniably important, providing a foundation for SMEs to operate more efficiently and professionally. However, as many of these businesses mature, a critical growth constraint begins to emerge -access to affordable capital for capital expenditure and expansion.
If we analyse the ESD landscape in South Africa, one of the self-defeating elements is that the ED beneficiary threshold has not been increased since the introduction of the legislation. We have to ask the question – do we want “safe” ESD beneficiaries, or do we want to see SMEs graduating to self-sustaining businesses in our supply chain?
The growth challenge: Affordable capital
While technical and back-office support services are essential, one of the most pressing challenges facing high-potential SMEs is securing the funding necessary to scale. Whether it’s purchasing new equipment, expanding operations, or entering new markets, growth almost always comes with a price tag that most SMEs cannot fund internally.
The traditional banking sector often sees these businesses as high risk, due to limited collateral or short trading histories. This creates a funding gap that, if left unaddressed, can stall or even reverse the growth trajectory of otherwise promising ventures.
A simple look at the SME lending landscape highlights the fact that there are many cash-flow based lenders prepared to issue short-term working capital and 15 – 21% (Real terms), but very few who are prepared to blend ESD with patient capital.
Blended finance requires specialist knowledge
To overcome this barrier, forward-thinking businesses and funders are increasingly turning to blended finance solutions. These can combine resources from a variety of funding mechanisms, including:
- Development Finance Institutions (DFIs), which can offer concessional or patient capital.
- Commercial lenders, who may be willing to extend credit under the right circumstances.
- Enterprise and Supplier Development (ESD) funding, which forms part of many large corporates’ Broad-Based Black Economic Empowerment (B-BBEE) scorecards.
- Government grants, such as those offered by the Department of Trade, Industry and Competition (DTIC), which support local industrialisation and job creation. This could include the likes of the Black Industrialist Scheme (BIS) or Agro-Processing Support Scheme (APPS)
By using these sources in combination, SMEs can reduce their overall cost of capital and unlock strategic funding that goes beyond just a one-off loan or grant.
Strategic fundraising requires strategic expertise
Accessing these forms of strategic capital raises requires a combination of skills including financial analysis, legal, industry incentive and tax know-how. Many of these ESD beneficiaries are still at the point where they are formalising their finance functions at an operational level – they have not yet developed a strategic finance function.
This is unfortunate as they are inwardly focused rather than looking at the businesses from a strategic perspective.
Through recent partnerships our team have supported multinational chemical and mining companies to work with their supply chains to raise nearly R500m in developmental capital through strategic fundraising.
These capital raises have allowed these multinational businesses to strengthen their domestic supply chains and allow these partners to develop beyond the status of “ESD beneficiary”.
However, strategic fundraising is not a one-size-fits-all exercise. It demands a tailored approach that starts with proper financial modelling to determine exactly how much capital is required and what it will be used for. It also requires accounting expertise to ensure that the business’s financials are investor-ready and deal structuring professionals who can design funding packages that align with both the funder’s risk appetite and the SME’s growth objectives.
This is where many SMEs fall short – not because they lack a strong business case, but because they don’t have access to the right team of advisors who can package and position their funding requirements in a credible, compelling way.
Reimagining B-BBEE spend to unlock real Impact capital
There is a significant opportunity here for corporates and funders who are serious about transformation and inclusive growth. By partnering with skilled black-owned advisory businesses, they can not only access the expertise needed to help SMEs raise capital, but also advance their ESD goals.
These partnerships allow companies to tick multiple boxes:
- Enterprise Development by supporting small black-owned consultancies.
- Supplier Development by integrating them into their own service supply chains.
- Socio-economic impact by ensuring that funding flows to the SMEs that need it most—those with the potential to create jobs, grow local industries, and build sustainable businesses.
In essence, it creates a multiplier effect where capital, skills, and transformation outcomes are all aligned.
Building an ecosystem of Impact
As the South African economy continues to evolve, the businesses that will thrive are those that view ESD not just as a compliance requirement, but as a strategic investment in the future of the country.
By aligning ESD funding with structured capital solutions and engaging advisory teams who understand the complexities of impact investing, companies can move from transactional to transformational.
These are the projects that move the dial – not just for individual SMEs, but for the communities they serve and the broader economy.
Are you interested in structuring an impact investment or ESD initiative that delivers real growth and transformation in your supply chain?
Connect with our team at Decusatio Impact Investment Solutions to explore how we can work together: https://www.impactinvestmentsolutions.co.za/contact-details-decusatio/