Friday, March 4, 2011

Most South African SMEs seeking funds fail to meet criteria

The strict criteria used by organisations assisting small and medium enterprises (SMEs) to get funding prevented 93 percent of these businesses getting business ideas off the ground, it has emerged.

This came to light during a seminar in Cape Town on Monday involving some of the these organisations and Shanduka Black Umbrellas (SBU), a non-profit entity that supports and organises funding for black-owned emerging businesses.

Charles Maisel, the director of SBU, said fewer than one in 20 of the businesses applying for membership with the organisation made it through to the stage where funding could be arranged because the criteria they used was strict and most people who wanted to start off as entrepreneurs proved unprepared or not sufficiently informed to break through the filtering process.

“Most of them apply because they see the programme as cheap office space and a step closer to getting the funding they need, but they are not any closer to understanding how they are going to sustain their businesses,” said Maisel.

Thabo Zwane, the Cape Town regional manager for SBU, said: “With every interview process there is more filtering because entrepreneurs then realise that it’s not actually a take-take system but they have to do their part and submit ‘mini-marketing’ proposals and other things like that.”

SBU charges between R500 and R1 000 a month for an SME business to get office space within the organisation and to use all other facilities to enhance and support their business. But SBU chief executive Mark Frankel said it cost them about R10 000 to render those facilities to each business, and they needed to ensure that anyone who became a member was going to make use of the facilities productively.

Frankel acknowledged that most people still did not know about facilities such as SBU and what it had to offer and that made it difficult for them to be able to benefit from such an organisation.

“The FinScope survey showed that less than 1 percent of people in South Africa knew about NYDA (National Youth Development Agency) or understood what it was. So when you look at something at a small scale like Shanduka, you will understand that very few may be aware of it and those who discover about it, are not really familiar with the process of complying,” said Frankel.

Entrepreneurs noted a number of issues that made it harder for them to comply with the filtering processes implemented by organisations that helped fund their businesses.

“Emerging businesses do not understand that they don’t only need a proper business plan but they also need to narrow down what exactly they want to do in order for funders to understand where they are going,” said Samuel Maneli, who owns Imvusa Trading, a security company.

Giving an example of how his company was different, Maneli said he did not provide security service for any company but for film and television industry clients.

Nondumiso Ncisana, from SBU, noted that lack of job readiness training was the factor that she had seen most young entrepreneurs stumble upon. She said most people who got into business did so because they were inspired by success stories and often did not think about the challenges they were likely going to face. When they had to demonstrate their plan of action in solving possible problems to funding organisations, they failed drastically, Ncisana said.

Londiwe Buthelezi - Business Report