A recent snap survey by enterprise development specialists Fetola, showed that 93% of small businesses are uncertain about where and how to access finance. “It seems that in South Africa a primary challenge is the difficulty associated with accessing funds, as opposed to the actual availability of funds for businesses,” says Catherine Wijnberg, Fetola CEO.
This finding was confirmed in the Global Entrepreneurship Monitor (GEM) report released by the University of Cape Town’s Graduate School of Business, which found that a key obstacle to small business development is not a lack of available finance, but rather the knowledge on where and especially how to access it.
Knowledge is Key
Simpiwe Somdyala, Head of the Masisizane Fund, which supplies soft loans to high potential black-owned and community-based businesses, is forthright in terms of the challenges faced by the financing sector. “In our experience it is proving more and more difficult to find suitable emerging businesses for our loans. The problem is that many organisations just don’t understand their own finances or indeed the needs of the banking sector – so much education is needed.”
Victor Mzimela, Head of Enablis Business Incubator concurs. “A lot of our work is about educating business owners how best to manage their finances, how to retain records and how to build a solid offering so that they become attractive to sources of finance such as banks or investors.”
According to Cynthia Olmesdahl, Business Management Specialist, financial management is a common challenge at SMME and non-profit level alike. “Smaller organisations often confuse the need for better financial management with the need for finance. Some simple tools to help with the management of cash flow and stock levels, for example, can sometimes negate the need for major finance and ultimately unlock a whole new business future.”
Lending at Record Lows
In spite of numerous financing options available, from commercial banks to government funding agencies, equity investors or venture capitalists, more advanced businesses are also currently struggling to gain finance, for a range of reasons. Naturally, the global credit crunch has had a huge impact on lending, but other reasons may be that some businesses are deemed too risky, others are early stage start-ups or perhaps don’t fit the BEE criteria laid down by government to access support.
In fact, Minister of Economic Development Mr Ebrahim Patel recently noted at the launch of new SME funding body SEFA (Small Enterprise Funding Agency) that “in a very short space of time, lending has dropped from near all-time highs to record lows. For example, growth in credit extension last year was the lowest in over 50 years.”
For a country that desperately needs to accelerate growth in the small business sector, this is not good news. What use are the dozens of funding agencies and options, if getting money out of them is so challenging for the average entrepreneur or non-profit leader?
