In light of the February 2019 State of the Nation Address, which mentioned the continued increase in spending for small business incubators; the experts at Outsourced Finance got thinking: what is the true state of financing for small, medium and micro-sized enterprises (SMMEs) in South Africa?

SMMEs struggle with access to finance because the organisations that are meant to support them, make them jump through numerous hoops and still often end up rejecting the application.

Take for example, applying for a business funding loan through the South African banking sector. Endless lists of forms are filled in and the founders must provide some form of guarantee that the business will be profitable – which we know is nearly impossible to do, as the business market is as unpredictable as the weather. The bank’s only concern is that the founder will be able to pay back the loan. Even if you were able to convince the bank that you are able to see the future enough for them to approve your application, the interest rate to pay back the loan adds a further burden to carry and could be the thing that potentially ruins your business. According to the IFC Unseen Sector Report, 75% of SMME credit application are rejected by Banks, while only 2% of new SMME are able to access bank loans.

The only alternatives then available are private equity funding and government. Meeting the criteria for private equity funding is just as tedious, and even less favourable because of their demand for equity in your business. This often results in the SMMEs selling their business for nothing to get funding.

Then there is government, the teeth-grinding process that could have you waiting from 6 months to 2 years for funding. During that time, businesses either collapse or another person has gained significant market share which increases the barrier to entry.

A revolution is needed in the area of financing for SMMEs. Financers need to be more understanding with start-ups. Yes, there is a high risk, but there is also huge potential for reward. Entrepreneurs can’t be expected to get it perfect from the start, and they need to not be penalised so harshly if they don’t. They need to have room to fall and then get back up to rethink their strategy or restructure their business if they need to.

Outsourced Finance is calling out to all the big banks: FNB, Standard Bank, Nedbank, Capitec and ABSA; to have a discussion about being radical about funding SMMEs, seeing each one as a potential partner and not just another number through a machine.

To the South African government; it’s time to talk about the Department of Small Business Development (DSBD). How can it be transformed to become truly impactful and not just a term that is thrown around by political parties during election time? There needs to be faster access to finance, and the credit checks for SMME founders needs to be adjusted, considering they may have had a bad credit record because they were self-funding the business and not necessarily as a result of reckless credit usage – often this fact is overlooked.

The SMME industry is the engine for job creation, and this engine is in need of a long overdue service. There is a desperate need for more support for small businesses, to free entrepreneurs from the ruthless regulations that have them wondering if their dreams are even worth the risk and effort.

We want to hear from entrepreneurs and small business owners in South Africa. The International Finance Corporation is conducting an online survey on the challenges and opportunities facing entrepreneurs in South Africa. Click here https://bit.ly/2ERiRJb to help increase access to finance and markets for SMMEs by sharing your experiences.

You can also read The Unseen Sector: A Report on the MSME Opportunity in South Africa to get a better understanding of how these SMMEs can aid economic growth and reduce unemployment rates.