The new unit helps corporate and commercial size businesses to achieve BEE targets, and also helps Exempted Micro Enterprises (EMEs) and BEE Qualifying Small Enterprises (QSEs) to access structured finance solutions.
Meeting the challenges posed by the new BEE codes has been made a little easier for companies by Standard Bank, through the launch of a new unit that assists larger entities to meet their BEE targets, particularly Enterprise and Supplier Development by providing beneficiaries of BEE deals with access to bespoke financial solutions.
Helping you meet the BEE legislation
The Enterprise and Supplier Development (ESD) pillar of the revised BBBEE codes, offers companies the opportunity to achieve 40 of the total 100 points required simply by expanding their relationships with black business.
Related: Making BEE work for you
Recognising the challenges of acquiring points within this pillar led to Standard Bank launching a new unit with pioneering solutions designed to benefit both corporates and SMEs, says Diale Mokgojwa, Senior Manager, Enterprise Development at Standard Bank.
“This pillar offers businesses an opportunity to develop sound business focussed partnerships and simultaneously qualify for the necessary points that will impact on their BEE ratings. One of the key requirements is that SME’s must be eligible for contracts with minimum terms of three years, the objective being to bring black SME’s into the core activities of big business.
“By adopting an effective strategy and backing the strategy with a finance partner, we believe that the demands of the legislation can be achieved.”
1. On-boarding and incentivising: 25 Points
He points out that of the 40 points on offer; 25 points are allocated to procurement from black-owned businesses (entities which are more than 50% black-owned).
The opportunity then arises for companies to ‘on-board’ selected black suppliers, or to incentivise white-owned smaller businesses operating as suppliers to offer equity in their businesses to black participants via arms-length ownership transactions.
2. Supplier development: 10 Points
Ten points are allocated for supplier development. Corporate and commercial companies are incentivised to execute supplier development programmes. The impact is likely to be more local content procurement and consequently job creation.
New suppliers can be assisted to become strong suppliers and existing suppliers can be assisted to grow. These initiatives can vary from expert assistance to financial guarantees.
3. Enterprise development: 5 Points
Five points are allocated for enterprise development, which allows corporates to invest in black-owned companies that do not necessarily have to be part of their supply chains.
This moves the focus away from SME’s offering major customer’s peripheral services with low barriers to entry – such as janitorial and security services – to companies that have the financial depth to participate in core corporate services.
Related: BEE certification
It is at this point that SME’s have been caught in a traditional ‘Catch-22’ – not being able to access the core capital required to offer the services required by large customers on a sustainable basis. It is here that the new Standard Bank unit comes to the fore.
Fully structured financial offering
“The new unit offers bespoke, structured funding solutions to qualifying SME’s, so that they then have the resources available to confidently enter the core supply chain of corporate companies. Corporate entities that enter into a “Value Chain Solution” with Standard Bank can be confident that the SMEs to whom they offer contracts will be able to easily access the capital they require to deliver on their contractual obligations.
"Until now, there has been no structured finance for these entities, as the base requirements making this financing viable were not easily achieved. We have now developed a solution that opens access to the capital SME’s require, with finance beginning at an entry level of just R 100 000,” says Mokgojwa.
“We have set this level as we realise that it is necessary to serve the entire market. We are offering a fully structured financial offering to entrepreneurs who need it most.
“Our offerings are wide ranging and represent a full suite of structured packages that can cover mergers and acquisitions - unique in the small business sector. We also have the mandate to take debt and structure it so that it resembles project finance - usually only available in investment banks and similar entities.”
Structured debt that resembles contract financing is also another option.
“Traditionally, these offerings only exist in an investment banking scenario, as they are services that require high levels of specialist service and require time to be structured correctly. We have been able to make a major shift by looking at our cost arrangements and adapting to service the market. We are not simply passing on costs. We have opened up the financing options, but made them simultaneously achievable for much smaller players.”
For example, a start-up business with a lucrative contract offering will be able to apply for financing for the machinery needed to meet the demands of the business partner. The business can then begin production and if the transaction is viable we could possibly structure it so that capital repayments only begin when money is generated.
“We match the repayment profile to the cash cycle to enable the process. The bank controls the flow of funding and puts in the mitigation tools – such as industry specialists to oversee delivery of the contracted outputs where Standard Bank feels oversight is required.
Related: BEE codes & scorecards
“As a business unit we add further value by sometimes paying for the expert services required. While risk is mitigated, essential management skills are passed on to the customer.
Access to capital
“The key to the entire service is that capital becomes available to qualifying companies. This has not been available in the past. We are promoting access to capital which enables entrepreneurs to meet obligations and make commercial returns.
“Corporates need the procurement, the support and the financing to achieve their corporate BBBEE targets. Our role is to support the initiatives by assisting with financing key elements of programmes to the benefit of all parties,” says Mokgojwa.