GEM is the world’s foremost study of entrepreneurship. Its latest report in South Africa revealed the following about access to funding.
Many entrepreneurs do not know who to approach to obtain finance for their businesses. In addition, they have no idea of the criteria on which funders will assess their business to business idea and therefore are disadvantaged in terms of presenting viable funding proposals.
Inadequate start-up funds are available for activities, such as business plan development, business viability assessments and prototype development.
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Too many funding organisations are managed by bureaucrats and have requirements that inhibit access to the funding for many potential entrepreneurs.
Funding programmes are often not well administered, with a waste of the funds and lack of accountability on the part of the entrepreneurs.
Those responsible for assessing funding applications or providing support to entrepreneurs are often inexperienced.
Investors and funders in South Africa are too risk-averse. The banking sector, while being advanced and sophisticated, is particularly risk-averse and often doesn’t lend to new or smaller companies.
State-owned funders have also come under pressure to be self-sustaining and make a profit, which has put more stress on these organisations, making them also increasingly risk-averse.
With public funding institutions using the same risk matrix as banks, entrepreneurs face similar resistance across the board.
Large banks tend to be security-based lenders (including salary slips), making it more attractive to seek formal sector employment if one wants a car, house or consumption loan.
Almost all financial institutions require loans to be secured by physical property, which means that most entrepreneurs cannot access finance from this source. For new businesses, a track record is difficult to prove - financial institutions regard them as high risk and require high collateral before extending funding. There is also no access to institutional capital to seed venture capital funds - institutions only support private equity.
There is a lack of angel investors, except in certain closely-knit communities.
These are some of the funding hurdles that South Africa entrepreneurs have to jump to succeed in business. These are also some of the issues that will be addressed at the Funding Fair organised by Deloitte and the Western Cape Government Economic Development Department.
The Funding Fair seeks to connect businesses that require funding from R2million with suitable investors, and educate applicants on best practices to follow to turn ideas into bankable business plans.
The Western Cape Funding Fair takes place today at the Cape Town International Convention Centre.
Deloitte and DEDAT are not direct funders of SMMEs, but through the Western Cape Funding Fair seek to educate entrepreneurs and business owners on accessing finance, looking at opportunities available, investment readiness and typical issues affecting access to finance.
At the Funding Fair entrepreneurs can expect to meet and engage representatives from business support organisations and funding institutions (development finance institutions, commercial banks, venture capital firms and more). Among speakers will be leading young entrepreneur Rapelang Rabana, who is also recognised by the World Economic Forum as one of the 100 “Young Global Leaders”.