Hlumisa presentation"access to finance in times of recession"

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Hlumisa presentation"access to finance in times of recession"

  1. 1. BDSP Perspective on Access to Finance in Recession
  2. 2. Facts!! <ul><li>SME’s contribute >60% to employment & > 50% to GDP </li></ul><ul><li>Negative growth in employment creation - by corporates and the government sector </li></ul><ul><li>Therefore SMEs have a major socio-economic role to play </li></ul>
  3. 3. Banks & Government Agencies <ul><li>Banks currently apply stringent risk criteria (Own contribution increased from 20% to 50%) </li></ul><ul><li>Banks reluctant to take clients through the Khula process (surety required) </li></ul><ul><li>Khula ordered by Cabinet in November to become a direct lender to small business (Big News, May 2009) </li></ul><ul><li>Banks Requirement of security a problem as majority of small business don’t have security or collateral </li></ul>
  4. 4. Banks & Government Agencies <ul><li>High interest rates had an impact on SME ability to services loans </li></ul><ul><li>BDSP’s don’t know who to contact at various banks </li></ul><ul><li>Uninformed client relationship managers at banks </li></ul><ul><li>Banks refer client to service providers for assistance with business plan – but do not fund them </li></ul>
  5. 5. <ul><li>Bank systems not geared to address ever changing working capital requirements of viable small businesses </li></ul><ul><li>SME’s closing down because government not paying on time </li></ul><ul><li>Some clients get funding from family and friends </li></ul>Banks & Government Agencies
  6. 6. <ul><li>Organisations like Umsobomvu Voucher & Funding departments don’t work together </li></ul><ul><li>Business Partners - security and own contribution not essential but cost of capital higher - funding above R250k </li></ul><ul><li>Certain Clients who meet all criteria - do get funded by Banks </li></ul>Banks & Government Agencies
  7. 7. <ul><li>Actual Example </li></ul><ul><li>Current requirements for funding </li></ul><ul><li>Security in the form of property – 66.67%. </li></ul><ul><li>Stock held as security. </li></ul><ul><li>Life policy ceded. </li></ul><ul><li>Royalty in the form of turnover%. </li></ul><ul><li>Interest rate = </li></ul><ul><li>Period from application to approval = 6 months. </li></ul><ul><li>Special insurance. </li></ul><ul><li>Cost to prepare documents = +/-R6000 </li></ul>Banks & Government Agencies
  8. 8. <ul><li>Entrepreneurs good operationally – but…… </li></ul><ul><li>Entrepreneurs lack knowledge on Cash Flow Management </li></ul><ul><li>Certain Entrepreneurs lack knowledge on basic costing </li></ul><ul><li>Banks not actively involved in developing entrepreneurs </li></ul>Lack of Knowledge & Training within SME’s
  9. 9. <ul><li>SME’s make use of unqualified bookkeepers </li></ul><ul><li>Banks waiting for proper historical financials </li></ul><ul><li>Feasibility Study Voucher – Start-ups – Umsobomvu </li></ul>Lack of Knowledge & Training within SME’s
  10. 10. <ul><li>What is required is: </li></ul><ul><li>Creative , Innovative & Flexible Ideas </li></ul><ul><li>From All Stakeholders (Banks/BDSP’s/Clients/Government Agencies) </li></ul><ul><li>Can be Piloted in the W Cape </li></ul><ul><li>Replicated throughout SA </li></ul>Conclusion
  11. 11. Thank You!! Questions??
  12. 12. 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

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