BDSP Perspective on Access to Finance in Recession

Facts!! SME’s contribute >60% to employment & > 50% to GDP Negative growth in employment creation - by corporates and the government sector Therefore SMEs have a major socio-economic role to play

SME’s contribute >60% to employment & > 50% to GDP

Negative growth in employment creation - by corporates and the government sector

Therefore SMEs have a major socio-economic role to play

Banks & Government Agencies Banks currently apply stringent risk criteria (Own contribution increased from 20% to 50%) Banks reluctant to take clients through the Khula process (surety required) Khula ordered by Cabinet in November to become a direct lender to small business (Big News, May 2009) Banks Requirement of security a problem as majority of small business don’t have security or collateral

Banks currently apply stringent risk criteria (Own contribution increased from 20% to 50%)

Banks reluctant to take clients through the Khula process (surety required)

Khula ordered by Cabinet in November to become a direct lender to small business (Big News, May 2009)

Banks Requirement of security a problem as majority of small business don’t have security or collateral

Banks & Government Agencies High interest rates had an impact on SME ability to services loans BDSP’s don’t know who to contact at various banks Uninformed client relationship managers at banks Banks refer client to service providers for assistance with business plan – but do not fund them

High interest rates had an impact on SME ability to services loans

BDSP’s don’t know who to contact at various banks

Uninformed client relationship managers at banks

Banks refer client to service providers for assistance with business plan – but do not fund them

Bank systems not geared to address ever changing working capital requirements of viable small businesses SME’s closing down because government not paying on time Some clients get funding from family and friends Banks & Government Agencies

Bank systems not geared to address ever changing working capital requirements of viable small businesses

SME’s closing down because government not paying on time

Some clients get funding from family and friends

Organisations like Umsobomvu Voucher & Funding departments don’t work together Business Partners - security and own contribution not essential but cost of capital higher - funding above R250k Certain Clients who meet all criteria - do get funded by Banks Banks & Government Agencies

Organisations like Umsobomvu Voucher & Funding departments don’t work together

Business Partners - security and own contribution not essential but cost of capital higher - funding above R250k

Certain Clients who meet all criteria - do get funded by Banks

Actual Example Current requirements for funding Security in the form of property – 66.67%. Stock held as security. Life policy ceded. Royalty in the form of turnover%. Interest rate = Period from application to approval = 6 months. Special insurance. Cost to prepare documents = +/-R6000 Banks & Government Agencies

Actual Example

Current requirements for funding

Security in the form of property – 66.67%.

Stock held as security.

Life policy ceded.

Royalty in the form of turnover%.

Interest rate =

Period from application to approval = 6 months.

Special insurance.

Cost to prepare documents = +/-R6000

Entrepreneurs good operationally – but…… Entrepreneurs lack knowledge on Cash Flow Management Certain Entrepreneurs lack knowledge on basic costing Banks not actively involved in developing entrepreneurs Lack of Knowledge & Training within SME’s

Entrepreneurs good operationally – but……

Entrepreneurs lack knowledge on Cash Flow Management

Certain Entrepreneurs lack knowledge on basic costing

Banks not actively involved in developing entrepreneurs

SME’s make use of unqualified bookkeepers Banks waiting for proper historical financials Feasibility Study Voucher – Start-ups – Umsobomvu Lack of Knowledge & Training within SME’s

SME’s make use of unqualified bookkeepers

Banks waiting for proper historical financials

Feasibility Study Voucher – Start-ups – Umsobomvu

What is required is: Creative , Innovative & Flexible Ideas From All Stakeholders (Banks/BDSP’s/Clients/Government Agencies) Can be Piloted in the W Cape Replicated throughout SA Conclusion

What is required is:

Creative , Innovative & Flexible Ideas

From All Stakeholders (Banks/BDSP’s/Clients/Government Agencies)

Can be Piloted in the W Cape

Replicated throughout SA

Thank You!! Questions??

Hlumisa – Small Business Solutions cc Solly Fazel-Ellahi Cell: 082 780 8994 Landline: 021 419 2477 Ascend Business Solutions Jayant C. Gajjar Cell: 082 859 1785 Landline: 021 674 7690