As a company who provides bankable business plans, market demand assessments and well researched feasibility studies, we often receive requests for quotations from small business owners. We have noticed that most small business owners require feasibility studies for them to be able to apply for funding for their business, but often do not have sufficient personal finances to pay for these studies nor do they know how to access funding to pay for these studies. As part of our efforts to assist these small businesses, we have written this blog to share the options that are available with small business owners to fund feasibility studies. We begin this conversation by defining what is a feasibility study.
What is a feasibility study?
Simply put, a feasibility study is a study that seeks to assess the viability of the proposed project or business idea. A feasibility study is usually undertaken after there is enough evidence, through some initial research, to support an idea or project and you can show you have a business case. Unlike a market demand assessment, a feasibility study includes an institutional and operational assessment and analysis of financial viability. As discussed in our previous blog about business cases, the institutional and operational assessment essentially represents the structure of the entity (legal, shareholding, etc), the HR structure, and business operations, while the financial analysis ties together projected revenue streams with capital and operational expenditure to show profit & loss and break-even.
Why do I need a feasibility study?
As a start-up or a small business owner with no proven track record or offtake agreements, funders require evidence of economic and financial viability of your concept. They need to know if your business will be able to generate the necessary revenues that will enable you to meet your financial obligations. In a feasibility study, this is achieved through developing demand models (sales projections) and financial projections. Different scenarios are presented, including the worst case scenario (a summary of what will happen to the finances if the business fails to secure the required contracts). All this information becomes the basis for a business plan.
How can I fund a feasibility study?
Funding a feasibility study is always a challenge, especially for start-ups or small business owners. In reality, there are few options in which a feasibility study can be funded. These include utilizing personal savings, private sector funding (i.e funding from potential investors or industry associations), funding from institutions of higher learning (mostly for students), and government funding.
In South Africa, there are a number of national and provincial support institutions that were established by the government to promote and support small and medium businesses. These institutions include the likes of Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA), providing financial support (funding) and non-financial support, such as business advice and information, marketing and branding and incubation services.
What most business owners do not know is that, in addition to the above listed support institutions and the services they are offering, there are government agencies and/ departments that offer funding for feasibility studies, for example, the Development Bank of South Africa (DBSA) and Department of Trade and Industry (DTI) “project preparation funds”. The DBSA has a Project Preparation Fund and the DTI has the Capital Projects Feasibility Programme (CPFP), a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and service (DTI, n.d.). Unfortunately, for small businesses, although these funds exist, these are generally for large projects/investment.
Is there funding for small businesses?
The long and short of it is that there is funding for small businesses to conduct feasibility studies. Institutions such as Trade and Investment KwaZulu Natal (TIKZN), National Youth Development Agency (NYDA), National Empowerment Fund (NEF), and SEDA do assist small businesses. At SEDA and NYDA there is a voucher programme specifically for feasibility studies and business plans. As a small business, your business advisor will take you through an assessment which will determine whether you qualify for the voucher or not. At TIKZN, there is the Technical Assistance Fund (TAF) which pays up to R300 000 per applicant.
Is this funding accessible?
The truth of the matter is that accessing any funding, especially in SA, is daunting but accessible. There are qualifying criteria that small business owners need to be aware of and ensure that they meet these requirements before sending off an application.
Is there anything Lumec can help me with?
In addition to conducting feasibility studies and market demand assessments, Lumec plays a pivotal role in the small business development space. Currently there are a number of programmes, aimed at capacitating and supporting small businesses, that we are part of. We do this because we are passionate about small businesses.
At Lumec, there is a team dedicated to assisting small businesses with all their business needs. We can assist you explore all your options, including applying for feasibility study funding. We can also assist you with business plans and market demand assessments.
- Investopedia. (2021). Feasibility Study. Investopedia. Retrieved 01 06, 2022, from https://www.investopedia.com/terms/f/feasibility-study.asp#:~:text=A%20feasibility%20study%20is%20an,of%20completing%20the%20project%20successfully.
- Jones, P. (2020, July 29). Understanding a ‘market demand assessment’ and ‘feasibility study’. Lumec. Retrieved January 6, 2022, from http://www.lumec.co.za/understanding-economic-market-research/