Lack of finance hampers SA’S business start-ups
Many potential entrepreneurs have been locked out of the SME sector and the economy due to funding challenges
There is no question that SA needs more entrepreneurs and small and medium enterprises (SMES) if it is to boost economic growth and assist in much-needed job creation to alleviate high levels of unemployment.
However, says CEO of Lionshare Holdings, Isaac Chalumbira, Ike Cha (as he prefers to be called), the reality is that many potential entrepreneurs and SME owners remain in corporate positions due to funding constraints and the fear of failing due to these constraints. Despite the creation of the Small Enterprise Development Agency (Seda) in 2004 — ostensibly to implement government’s small business strategy by developing, supporting and promoting small enterprises — the barriers and bureaucracy of establishing an entrepreneurial business remain.
“Access to finance remains the biggest constraint to growing the SME sector,” says Cha. “Seda does not make sufficient disbursements to make any kind of meaningful difference to the establishment of new businesses, and given the conservative nature of our banking sector, it’s often hard for budding entrepreneurs to find funding, let alone start-up funding.”
To unleash the full potential of the SME sector, he says, SA urgently needs to remove barriers to entry, and ensure that more entrepreneurial funding is made available. “Even if less than half of all new businesses survived their first five years it would still make a meaningful difference in terms of growing the economy and alleviating unemployment.”
Cha has had first-hand experience of the challenges faced by entrepreneurs in SA. He’s been denied finance by at least two of SA’S largest banks since establishing his own entrepreneurial ventures in 2003 and says most of his financing has not come from traditional banks.
Lionshare Holdings, an investment holding company that was established using a credit card to fund the acquisition of its first downtown apartment, has an annual turnover of about R2bn, employs more than 1,100 people and has a portfolio of investments worth R700m. Despite its track record, funding continues to be a challenge. “My business model doesn’t fit a traditional bank’s vanilla, cookie cutter approach, which makes them hesitant to provide financing for most of my ventures,” says Cha.
However, when traditional avenues of finance are not an option, it’s time to get creative and explore other options, he says.
“Look around for government sponsored and alternative funding mechanisms. I was client number Budding entrepreneurs are unable to participate in the economy and job creation due to absence of funding mechanisms three at the Trust for Urban Housing Finance (TUHF) in 2003, for example, which provides financing for entrepreneurs to purchase, convert or refurbish buildings in SA’S inner cities. TUHF has been an amazing funding partner in my entrepreneurial journey.”
A graduate of the University of Cape Town, Cha joined Procter & Gamble’s graduate management programme in 1995 and remained with the company in various marketing positions for three years. Thereafter he moved to Coca-cola Southern Africa for eight years.
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