With a shrinking economy and unemployment at an 11 year high, small medium and micro-sized enterprises (SMEs) can provide the fuel we need to fire up growth and create jobs in South Africa. These businesses might be small, but they make a huge contribution to the economy, employing approximately 47% of South Africa’s workforce and contributing more than 20% to the gross domestic product.
Access to funding is critical for many entrepreneurs to launch their business or achieve scalability and, for promising local entrepreneurs, there are a number of funding opportunities to help them on their way.
Bridgit Evans, SAB Foundation Director, outlines some of these options and the benefits or setback that they provide.
1. What value do financiers provide SMEs?
The national start-up success rate is currently only about 20%. However, targeted funding and business support enables businesses to procure the business equipment, infrastructure and services they need to achieve economies of scale and reach a point of profitability.
Financiers typically also understand the factors that impede or assist a business’s success and can work with entrepreneurs to overcome obstacles and inefficiencies.
At the SAB Foundation, this involves providing business training and mentorship, as well as financial support, which helps entrepreneurs overcome early obstacles.
2. What are the financing options available to SMEs?
Most corporates have enterprise and supplier development programmes that support entrepreneurs who show potential to enter their supply chains. There are many government opportunities as well. The website www.finfind.co.za lists many of the funding options available for SME’s.
Alternatively, entrepreneurs can pursue venture capital (VC) funding, which is generally secured from private investors. VCs provide funding in exchange for shares in a business that they believe shows a strong growth potential.
However, entrepreneurs should be mindful of the fact that securing finance via this channel requires that they sign over a portion of their business. Therefore, they need to be sure that their vision for the business is aligned with that of their investors.
A third option is a bank loan which will need to be paid back with interest. However, banks have strict guidelines to determine whether a candidate is suitable for funding and will not fund high risk ventures.
3. What are the challenges of starting an SME and, besides financing, what other services does the SAB Foundation provide SMEs?
In my experience, the business training, mentorship and access to markets the SAB Foundation provides to entrepreneurs is often much more valuable than the funding. Understanding the basic principles of financial management, HR, sales, marketing and costing helps entrepreneurs build their confidence and identify and address business shortcomings early on.
Start-up founders are required to play multiple roles. They have taken great personal risk to achieve success in their businesses and this comes with high pressure and stress.
Having a mentor can help entrepreneurs who feel anxious or out of their depth, providing them with guidance and support, not just from a business perspective, but also from a personal and leadership point of view.
4. What advice would you give to business owners looking for financing?
When it comes to securing business financing, there is a lot of competition. Funders invest in entrepreneurs who have already shown their own sacrifice and hard work in getting as far as they have, and whose businesses can demonstrate market demand and the potential for growth.
Entrepreneurs should take the time to identify what differentiates them from the competition and why they are more likely to succeed. They should also have a clear understanding of how much funding they require, what they intend to do with it and how it will benefit their business.
5. What are the pillars that need to be in place before you even start looking at financing?
Since SAB Foundation is a philanthropic funder, we do not receive a financial return on our investment. Our aim is to develop role models, to contribute to economic growth and to create jobs.
Unfortunately, and many funders will attest to this, we are bombarded with people looking for easy or free money, many of whom are not interested in actually doing the work required to grow a business.
We therefore place a strong emphasis on leadership and have an extensive selection process to ensure we back the right ‘jockeys’. We want to see how well this person understands their business, their market, their areas for development and their numbers.
