New ap­proach un­locks SME FUND­ING

The Poultry Bulletin - - FOCUS ON FEED -

En­ter­prise de­vel­op­ment - the fo­cus of the lat­est changes to BBBEE leg­is­la­tion - will in­evitably be be­dev­illed by the SME sec­tor not be­ing able to eas­ily ob­tain fi­nance, a stick­ing point that un­less re­solved, will see en­trepreneurs still bat­tling to es­tab­lish sus­tain­able en­ter­prises that can cre­ate the thou­sands of jobs re­quired to stim­u­late growth in South Africa.

El­don Pil­lay, Man­ager: Growth and Ac­qui­si­tion Fi­nance at Stan­dard Bank says the key to a more vi­brant SME sec­tor is not only in­creased sup­port from the ma­jor cor­po­rate sec­tor, but also a move away from the ‘vanilla’ debt fi­nance op­tions and loans that have been used in the past for a sec­tor that has the po­ten­tial to cre­ate and ab­sorb sus­tain­able jobs in our econ­omy.

“The lat­est move in BEE scor­ing places em­pha­sis on cor­po­rate in­volve­ment in sup­plier and en­ter­prise de­vel­op­ment to broaden the na­tional busi­ness base. This will re­quire pro­vid­ing the sup­port and fund­ing for skilled peo­ple to move into busi­ness. Al­lied to this is the ne­ces­sity for th­ese ac­tions to help re­duce the tra­di­tion­ally high fail­ure rate of small busi­nesses in South Africa,” he says. “Cen­tral to any progress be­ing achieved in this re­gard is the need for re­duc­ing the risk as­so­ci­ated with lend­ing to a group of peo­ple who may have oc­cu­pa­tional skills and pas­sion, but who some­times lack the busi­ness knowl­edge to suc­cess­fully man­age and grow a busi­ness.”

Man­age­ment of risk, al­ways a ma­jor con­sid­er­a­tion for bank fi­nanc­ing of SME oper­a­tions, has meant that com­mer­cial banks re­quire busi­ness plans, col­lat­eral and per­sonal in­vest­ment in a busi­ness backed by a re­pay­ment plan be­fore fund­ing is con­sid­ered.

“With ma­jor busi­nesses be­ing re­quired to use up to 3% of post-tax earn­ings to help pro­mote en­ter­prise growth, we need to not only re­view the way we of­fer fi­nan­cial sup­port to smaller en­ter­prises, but also bol­ster this with mov­ing away from ‘play­ing it safe’ by stick­ing with busi­nesses that have a low-cost and less risky en­try point.”

“There is a grow­ing need for the de­vel­op­ment of busi­nesses that add value and are more ca­pa­ble of sus­tain­able growth and in­creas­ing their mar­ket share to a larger au­di­ence.” Be­liev­ing that a turn­around in the present SME fi­nance model pol­icy re­quired a more proac­tive stance to fi­nance has led Stan­dard Bank to ex­am­ine the op­tions open to it through in-built ex­per­tise, namely ap­ply­ing to the en­ter­prise de­vel­op­ment sec­tor the fi­nance so­lu­tions tra­di­tion­ally found only in the cor­po­rate bank­ing sec­tor. The ba­sic change has been in the cri­te­ria for making loans avail­able for smaller busi­nesses.

“We be­lieve that the main ques­tion to be asked when as­sess­ing a loan should be: Can you pay back the loan as op­posed to the tra­di­tional ques­tions of “What col­lat­eral do you have and what de­posits can you put down?” Also, will it cre­ate jobs and help ab­sorb more peo­ple into the econ­omy?” says Pil­lay. “Ask­ing th­ese ques­tions and then sat­is­fy­ing our­selves that an en­ter­prise can pay back a loan, even if this is not achiev­able in the tra­di­tional in­stal­ment sense, then en­ables the ‘loan gates’ to fig­u­ra­tively open.”¡

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