SME growth is a top priority in our country – small businesses create jobs. Access to finance is one of the key requirements to achieving business growth, and while there are a large number of government and private sector lenders offering funding to viable businesses, entrepreneurs continue to cite lack of access to finance as a major reason for business failure, and a constraint to their growth.
Latest findings by global research giant USAID states that “women-led small, growing businesses significantly outperform their peers by growing revenue and jobs twice as fast as their male counterparts. Yet, despite owning faster-growing businesses, women do not raise significantly higher amounts of capital” (Accelerating Entrepreneurs Report). In South Africa, approximately 19% of SMEs are led by women entrepreneurs and while they may be the top performers, they are faced with the same, if not more difficult challenges when it comes to securing much needed growth finance.
USAID research (Financial Sector Program) points to three critical factors, that cause the disconnect between the providers and seekers of SME finance:
1. Lack of knowledge – SMEs do not know who the various lenders are, what finance products are available to them, or where to access this vital information.
2. Lack of funding readiness – SMEs applying for finance are unable to produce the necessary, up-to-date compliance and financial documentation requested by the funder.
3. Mismatch between SME needs and funder offerings – while there may be lot of money available to lend, most of it is ear-marked for very established businesses, or for highly specific needs. Funding offerings, on the whole, are not tailored to address the needs of the majority of SMEs.
Know who the lenders are and what funds are available
Banks are often the first port of call for entrepreneurs, although they are typically the last place you are likely to secure finance – they are highly risk averse and their lending criteria is very stringent. Entrepreneurs can save themselves a lot of time, frustration and inconvenience, by doing their homework first, to find out about the different types of lenders and finance offerings available to SMEs in South Africa. Finding the right lender and appropriate funding option is half the battle won.
There is now a free, easy to use, online platform, that provides this matching information as well as funding qualifying criteria to entrepreneurs – it’s called Finfind. To find the funder you need, go to www.finfindeasy.co.za.
Explore funding options for female entrepreneurs
ABSA Bank – Women Empowerment Fund. This loan specifically targets women business owners who have been unable to raise finance due to a lack of collateral or have had their loan application rejected due to poor credit records. They fund a range of businesses from new start-ups, existing businesses, franchises and small businesses needing working capital.
Identity Development Fund (IDF) – Isivande Women’s Fund. This fund supports women-owned businesses and includes start-up funding, business expansion, business rehabilitation, franchising and bridging finance. Your company must have been in operation for at least 6 months, be 50% owned by women and managed by women. You will have to show that the business has the potential for growth and sustainability, and that it will have a social impact in terms of job creation.
WDB Enterprise Development Fund. The WDB Trust focuses on the social and economic upliftment of rural women and households, by providing micro-enterprise credit and business skills training to aspiring female entrepreneurs. They provide loans of between R50 000 to R400 000 in Agriculture, Manufacturing, Waste Management and Recycling, Green Energy, and Specialised Services.
Get ready to apply for funding
You can significantly increase your chances of accessing finance if you keep your business compliance and finance documents up to date and readily available. Nothing impresses a funder more than an entrepreneur who can easily produce the documents they request.
Make it a habit to always have copies of directors’ IDs, company registration documents, a valid tax clearance certificate, a current business plan and the latest schedules of assets and liabilities (for both the business and the directors) available. You’ll need the latest, signed off financials and copies of current management accounts (balance sheet, income and expenses and debtors’ age analysis, including cash flow forecasts).
Keeping a detailed cash flow statement that projects future flows of money is vital if you want to avoid failure and be prepared for growth. This document enables you to see where the cash gaps are, so you have the time to properly plan to raise the money you need. It also shows the lender how you plan to repay the loan and over what period. Lenders favour businesses that demonstrate they are on top of their financial management and are excited by entrepreneurs who can easily produce their documents.
Funding for business growth is critical. The reality is that you can have a great car and be an outstanding driver, but if you’ve got no petrol i.e. cash for working capital, you’re going nowhere.