SME Access to Finance
Funeka Ntombela
20 May 2009
The information contained in this document is solely for the use of Standard Bank personnel. No part of it may be circulated, quoted, or reproduced
for distribution outside Standard Bank without prior written approval from Standard Bank of South Africa, Customer Strategy.

Agenda
• What SMEs can expect in 2009
• What should SMEs do in difficult times?
• Financing in difficult times
– What banks look for when assessing credit
– Financing options
– Matching the finance to the business needs
– Applying for a loan
– Challenges in financing SMEs
– Some reasons for loans being declined
– Some of our strategic partners
• Closing thoughts
2

What can SMEs expect in 2009?
Tough times still lie ahead...
3

What can SMEs expect in 2009?
Forecasts of major macro-economic indicators suggest difficult growth conditions
for SMEs in 2009…
• SMEs that supply goods and services to individual consumers: can expect a
significant slowdown in consumer spending
• Retrenchments can possibly lead to new businesses starting up and
more competition for existing SMEs.
• Second wave: knock on impact of slowdown in large corporates
• Impact of Global financial turmoil ,especially those involved in importing or
exporting.
• Lower inflation rates, lower fuel prices and lower interest rates have a
positive impact on SMEs: more favourable trading conditions.
4

What can SMEs expect in 2009?
Disposable income and expenditure by households have plummeted since 2007 resulting in
unfavourable trading conditions for most SMEs focused on the consumer market
Real consumption expenditure by households vs.
Real disposable income of households
10.0
Seasonally adjusted annualised rates
8.0
6.0
4.0
2.0
0.2
0.0
-0.8
-2.0
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008
Final consumption expenditure by households Disposable income of households
(Source: SA Reserve Bank)
5

What can SMEs expect in 2009?
The average South African household spends 78,5 cents of every R1 income on
settling debt…
90 16
Household debt to disposable income vs. Debt service ratio
80 Household debt to disposable 14
income at historic high - 1st Quarter
Seasonally adjusted annualised rates
70 2008: 78.5%
12
60
10
50
8
40
6
30
4
20
10 2
0 0
Q1 1995
Q3 1995
Q1 1996
Q3 1996
Q1 1997
Q3 1997
Q1 1998
Q3 1998
Q1 1999
Q3 1999
Q1 2000
Q3 2000
Q1 2001
Q3 2001
Q1 2002
Q3 2002
Q1 2003
Q3 2003
Q1 2004
Q3 2004
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Household debt to disposable income of households Debt service ratio (RHS)
(Source: SA Reserve Bank)
6

What can SMEs expect in 2009
Consumption and wealth to disposable income continue to decline…
7

What can SMEs expect in 2009
Decline in private sector employment now a significant factor …
8

What can SMEs expect in 2009
Manufacturing still on the decline and likely to continue shedding jobs…
9

What can SMEs expect in 2009
New CPI basket likely to return to the inflation target in late 2009...
11

What SMEs can expect in 2009
Lending slow down off a high base and on the back of slower demand and tighter
credit policy …
12

What should SMEs do in difficult times?
Back to basics, prudent for now ...
13

How stable is your business?
It is vital to understand whether your business is vulnerable in these times…
South Africa: Major economic sector growth and contribution
(1st 3 quarters 2008 vs. 1st 3 quarters 2007
25.0
How 20.0 16.8 17.3
14.5
21.5 20.4
18.7
diversified 15.0
12.3
10.0 6.2 5.8 5.7 7.9 5.3 3.7 5.9 9.6
4.6 3.3
is your 5.0 2.3
4.0 3.2
4.0 4.0 3.9
1.2
3.1
1.1
2.3
business? 0.0
-0.5
-5.0
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Assessment
How much
How
pricing power
strong is
does your • Are you dependant on one supplier? Can you
your cash
business negotiate pricing with this supplier?
flow?
How much have?
• Are you an important client to your supplier?
debt does Will the supplier negotiate with you to keep
your your business?
business • Do you have many competitors? Do other
have? businesses offer similar goods or services as
your business? Is price a decision-making
factor for your clients?
14

What should SMEs do in difficult times?
There are a number of actions SMEs can consider to survive difficult times…
1. Manage and improve your cash flow
2. Focus on customers
3. Save and invest as much as you can
4. Reduce expenses and managing your costs
5. Protect yourself and your business
“Dark and difficult times lie ahead.
Soon we must all face the choice between what is right and what is easy.”
J. K. Rowling
15

Action 1:
Understanding your cash flow
In order to understand how to improve cash flow it is important to first understand
the different types of cash flow…
+ Cash inflow:
_ Cash outflow:
• Sales of your merchandise or • Business expenditures on stock or
your services; fixed expenses;
• Asset sales (such as • Loan or overdraft repayments;
tools, machinery, equipment or • Asset purchases, for example, a
property you no longer need for vehicle, property, work equipment;
and
your business);
• Owner withdrawals for example,
• Loan or overdraft facilities from money you take out of the
your bank; and business’ accounts or cash
• Owner investments, i.e. money register.
you personally put into the
business.
Ideally business owners want to maximise cash inflow and minimise cash
outflow.
16

Managing your cash flow
It is important to establish good practices which will assist you in managing your
cash flow effectively and will help you to ensure your business’s financial health:
• Budgets and budgeting
A budget helps you to keep an eye on the future while tracking past performance.
• Financial statements
Financial statements provide you with the information you need to measure your
business’s success and to make sound financial decisions.
• Bookkeeping chores
Bookkeeping is an administrative task which requires daily attention and helps
you to stay on top of your finances.
• Proper invoicing
Proper invoicing will assist your business to receive payment from clients and
keep track of outstanding payments.
• Collecting debt
Late payments and bad debt can create cash flow problems for your business.
Poor cash flow management is one of the major causes of failure in small
businesses.
17

Improving your cash flow
There are a number of ways to improve cash flow within your business…
• Don’t buy excessive volumes of stock or inventory if there is not a
good business reason for doing so
• Keep overheads or expenses to a minimum
• Improve suppliers’ payment terms
• Arrange an overdraft at your bank that you can use in an emergency
situation. This may just be the life line that is needed to help your
business cover a lapse in cash flow for a short period.
• Manage your debt effectively
Improving cash flow is not a „once off event‟ but rather a way of doing business
18

Action 2:
Focus on customers
Changing the way you engage with your customers could have the most significant
impact on your cash flow…
• Increase your number of clients and average spend per client.
• Know your customers.
• Inform and educate your customers.
• Require a down payment (that is a percentage of the invoice amount)
or a deposit from customers so that they help you to cover your initial
expenses.
• Put a collection process in place, and ensure that you regularly collect
payments from your customers.
• Put effort into your pricing.
• Strive for service excellence – happy customers don’t take their
business elsewhere. In all likelihood they’ll refer business to you.
As consumer spending come under pressure it is vital to
monitor your sales and profit
19

Action 3:
Save and invest as much as you can
Getting into the habit of saving and investing can rescue your business…
• As you improve your cash flow it is vital that you put your excess cash
to good use.
• Careful consideration should also be given to re-investing profits back
into the business instead of withdrawing all profits from the business
for personal use.
• Savings or investments can mean the following for your business:
– Overcoming short term cash flow problems.
– Access to finance as it can be used as a deposit when you purchase assets,
vehicles and/or property.
– Peace of mind as it provides a buffer or safety net in difficult times.
– Enable business expansion or diversification without borrowing.
In a world where capital is scare it is vital that you create your own
20

Action 4:
Reduce expenses and manage costs
As mentioned earlier reducing expenses and managing costs can create cash flow
in your business…
• Investigate how you can reduce expenses
• Put measures in place to limit expenses incurred by staff
• Think carefully about employing more people, increasing salaries or
wages and paying bonuses
• Make compromises in the short term – is a new vehicle, computer,
premise absolutely necessary right now?
• Increase productivity and efficiency – do more with less!
• Negotiate better payment terms and pricing discounts with your
suppliers.
• Think carefully about expansion plans – can your business afford it
now?
Do not hesitate to say “no” if the expense will not generate an income
21

Action 5:
Protect yourself and your business
It is good to review your insurance policies regularly as you can run enormous risks
without sufficient insurance…
• Many cancel insurance policies when the going gets tough – be
careful to reduce expenses in this area as it often means less cover
and less peace of mind!
• If sales are less and revenues lower – can you afford unforeseen
expenses when disaster hits?
• Manage debtors with rigour and put a collections process in place.
• Always remember to make back-ups regularly to prevent data loss.
• Fraud and criminal activity increases as people find themselves in
financial difficulty – protect your passwords, bank cards, chequebook,
etc.
Always assess whether your business would be able to absorb the shock
22

Financing in difficult times
Matching finance to your business needs...
23

The different stages of business
• How do I grow?
Take-off or • Grow using cash from the
Finance business or borrowed money?
Phase • How do I go about borrowing
money?
• Understand operating ratios of industry
Survival or • Manage expenses
Cash-flow
• Increase sales
Phase
Cash flow needs to be enough to cover
costs and to grow the business
• Can I deliver?
• Can I expand?
Start-up • Do I have enough money?
Phase
Need to learn how to run a business, how
to develop a business plan, how to access
finance
6 Months 1 - 2 Years 2 - 5 Years

Financing options
Standard Bank offers various finance options to suit your every business
need ...
• Overdraft
An overdraft can be used to finance cash flow and bridge timing gaps.
• Business loans, e.g. Business Revolving Credit Plan
Business loans can be used for small acquisitions, bulk stock purchases and to
finance some assets.
• Contract finance
A small business might be awarded a contract but lack the finance to start the
work. Finance is provided based on the strength of a firm contract.
• Khula guaranteed loans
These loans are for businesses that do not have enough assets to put up as
collateral for a bank loan.
• Vehicle and asset finance
This is the ideal way to finance all your new and used vehicles and assets.
• Property finance
This loan enables business owners to purchase, extend, or improve a property!
• Debtor finance
Invoice discounting, ideal for rapidly growing businesses with quality debtors
books. Improves cash flows!
25

Matching finance to the purpose it
is needed
Type of finance
What you need the Over- Business Medium Business Debtor Vehicle
money for: draft revolving term mortgage finance & Asset
credit plan loan Finance
Working capital: Cash  
Working capital: Stock  
Office Equipment  
Plant and other equipment 
Fixtures and Fittings 
Vehicles 
Other second hand assets  
Property  

What does a bank look at when
assessing applications?
Financial criteria Security
• Owner’s contribution to the • Tangible collateral (real assets)
business • Intangible collateral (future cash
• Realistic projections flows)
• Ability to carry debt • Personal assets of owners
• Assets in the business
Management Environmental
• Profile of the owner • Risk associated with the industry
• Management, financial and • Location
marketing skills • Competition
• Technical skills and qualification • Barriers to entry

Applying for a business loan
Documents required to apply for a business loan:
• Start-up business:
– A comprehensive business plan
– Personal statement of Assets and Liabilities and Income and Expenditure sheet on
all the members/shareholders
– CV’s and copies of ID’s on all the members/shareholders
– Favourable bank report or latest 6 months consecutive bank statements on the
personal accounts of all the members/shareholders if not banking with SBSA
– If any of the members/shareholders owns an existing business, obtain latest
financials and up to date management accounts latest 6 months bank statements if
not banking with SBSA and commentary around exposure and security to Bank
– Cashflow projection for the next 12 months and assumptions to the cashflow
– Copies of contracts (if applicable)
Contact a Business Banker at your nearest Standard Bank branch for more
information and guidance.
28

Applying for a business loan
Documents required to apply for a business loan:
• Existing Business:
– Personal statement of Assets and Liabilities and Income and Expenditure sheet on
all the members/shareholders
– CV’s and copies of ID’s on all the members/shareholders
– Favourable bank report or latest 6 months consecutive bank statements on the
personal accounts of all the members/shareholders if not banking with SBSA
– Latest annual financial statements and up to date management accounts if the
annual financials are older than 6 months
– Cashflow projection for the next 12 months and assumptions to the cashflow
– If the business current account is not with SBSA, latest 6 months bank statements
– Copies of contracts (if applicable)
– Latest debtors and creditors age analysis (if applicable)
Contact a Business Banker at your nearest Standard Bank branch for more
information and guidance.
29

Financing in difficult times
Although the global increase in the cost of capital limits commercial banks’ ability to
lend – good and healthy businesses and strong business cases still get access to
finance…
• Examine your reasons for wanting financing carefully
• Save for a deposit
• Get your finances and financial records in order
• Keep your credit record clean
• Conduct your business current account responsibly
• Keep within your arranged limits with the bank
• Build a good relationship with your Business Banker
• Help the bank understand your business better
• Stress your cash flows to understand the impact of interest rate hikes
on your business
If you find yourself in financial difficulties, talk to your bank sooner rather than
later. The sooner you discuss the situation, the easier it will be for the bank to
find a practical solution that suits and protects both parties fairly.
30

Debt management and restructuring debt
If you experience financial difficulty it is vital that you talk to your Business Banker
sooner rather than later, especially…
• If you expect to experience difficulty in repaying a loan
• If you are in excess of your arranged overdraft limit
• If you have an account in arrears (i.e. you have not made payment by
the required date)
• If you have multiple loans in arrears and you can not meet your
monthly obligations
• If you require debt counselling
• If you need to restructure your debt in order to meet your monthly
obligations
Standard Bank debt review department helpline: 0861 111 402 or email
debt.review@standardbank.co.za
31

Challenges in financing SMEs
• Perceived high risk of SMEs especially the start-up
business
• Smaller loan sizes and cost of delivery
• Lack of collateral in SMEs
• Information gabs specifically in financials and projections
• Technical skills often not matched by business
management skills
• Quality/viability of business cases presented
• Lenders uncertainty about SME landscape
32

Reasons loans are declined
• Business is unsound, risk is too high, bank cannot determine risk –
business is not sustainable
• Insufficient security or lack of collateral
• Lack of owners commitment, often indicated by his/her contribution to the
business
• Business plan does not provide adequate information
• Purpose of the finance required is not justified
• Character or suitability of owner
• Passive investment – owners not involved in the business
• Adverse behaviour on existing credit facilities
• Business over geared
Business Plans – see www.standardbank.co.za
Business >> Starting a business >> Getting started >> Starting a business >> How to draw up a business plan

Strategic Partners
Guarantee Scheme
Risk Sharing Arrangement
Guarantee Scheme
Risk Sharing Arrangement
Entrepreneurship
34

Closing thoughts
Cycles turn and good businesses always
emerge stronger...
35

Questions?
36