SMMEs lose faith in finance houses

2011-11-26 07:27

Of emerging entrepreneurs, 60% have lost faith in banks and government-owned finance houses, opting to finance small, medium and micro enterprises (SMMEs) from their own pockets, according to a study released this week.

“Access to finance did not emerge as a critical barrier to expansion of staff numbers,” reads the report conducted by non-profit SMME researcher SBP.

“But the prevailing perception across the panel (emerging entrepreneurs) is that banks are not willing to lend to small businesses, and that financial assistance programmes provided by government departments and agencies such as the Industrial Development Corporation are administratively overcomplex and thus largely inaccessible,” reads the report.

“If SMMEs that are more than two years old and stable find it hard to access finance from banks, this means that the businesses would find it hard to survive when they experience cash flow problems,” said Kerri McDonald, a research manager at SBP.

South African Chamber of Commerce and Industry chief executive Neren Rau said banks needed to change the models used to assess entrepreneurs for finance.

“We are dealing with unusual economic circumstances and are struggling to keep the door opened. SMMEs need to be supported in order for the economy to create jobs,” said Rau.

“Banks should stop using conservative methods to assess risks and rather employ psychographic methods to qualify people for finance.”

He said banks should simplify their lending criteria.

“For instance, we cannot expect an entrepreneur to go through a sophisticated application process when applying for R2 000.”

The survey interviewed 500 SMMEs in Johannesburg, Cape Town, Durban, Limpopo and North West that have been operating for at least two years.

The businesses operate in the tourism, business services and manufacturing sectors. Each firm interviewed employs between 10 and 49 people, and on average generates a yearly turnover of R6?million.

The focus was on what drove SMME survival and growth.

Another interesting finding is that 25% of the country’s SMMEs are owned by people aged between 20 and 40, while the remainder belonged to entrepreneurs aged between 41 and 70.

Jobs have steadily been falling.

Rau said the culture of entrepreneurship in South Africa was in decline because the country had not done enough to nurture entrepreneurship and business confidence was dampened by economic challenges.

The study shows that 43% of SMMEs do not have black economic empowerment (BEE) rating certificates, which could enhance their chances of winning government tenders.

McDonald said the SMMEs felt that the cost implications of securing rating certificates made it unattractive for the businesses to secure the qualification.

This was especially so when they were not doing business with government.

McDonald said South Africa’s regulatory environment was hostile to SMMEs.

“If older entrepreneurs who have been in the game for at least two years still complain about the regulatory environment, that does not bode well for young entrepreneurs who do not have the experience of running businesses,” said McDonald.

The survey highlights the fact that SMMEs are not in favour of BEE because of perceptions that it limited opportunities to do business with large firms and government.

“The SMMEs think that BEE shareholders are difficult to attract and that there is a high level of job mobility among skilled BEE staff,” reads the survey.

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