ACCESS TO FINANCE

		The small business sect or has both the potential as well as the historic task of bringing millions of people from the survivalist level including the informal economy to the mainstream economy. Constraints to new entrants in the SMME sect or must be unblocked through the provision of adequate support to ensure that SMMEs survive the harsh introduction to the s tiff competition of big businesses in the mainstream economy. The crucial barometer for the success of the Government’s integrated strategy on the pr omotion of entrepreneurship and small enterprises is the continued creation of new start up firms and the growth of existing businesses by all segments of society and in all corners of our country resulting in the improve ment of economic and social well being of the poor communities.
Thami Nompula Executive Director Business Development

Success and failure is a normal part of business processes but effective monitoring and networking, adequate skilling, mentoring, development of good business acumen and sound principles and practices coupled with a high degree of business integrity will ensure that the prevalent environment does not perpetuate a culture of failure but rather a winning one. A frequently cited complaint in South Africa’s economic development is the lack of seed capital and development finance for SMMEs. It is argued that DFIs and commercial banks are not doing enough to support emerging businesses, thus creating a great need for further specialized SMME financing.

South Africa has plenty of would be entrepreneurs, wanting to start their own business and demand for Capital is high. However any fund set up for the financing of Small and Medium Businesses in South Africa faces the challenge of the large amount of failures currently experienced amongst start up and existing businesses.

New businesses start up all the time, however as quickly as they start, all too many close down. While many people want to own a business, they fail to lay the ground - work, they do not prepare themselves to be business owners and do not have or fail to acquire the knowledge and skills they will need to run a successful enterprise.

It is essential for any fund, providing venture capital, that the risk involved is reduced to a minimum. The fund manager must be able to assess the entrepreneur and be able to enhance the entrepreneur’s potential for success. First of all by checking criteria such as integrity, business skills and entrepreneurial qualities and then offering monitoring, training and mentorship, with competent advice on all aspects of running a business, covering marketing, management, research and development, operations, financial planning, administration and finance, information technology and human resources.

A study conducted by the Finmark Trust on behalf of the DTI in 2006 defined obstacles to access to finance for women entrepreneurs in South Africa as follows:

• Financial Illiteracy : poor understanding of financial terminology and lack of awareness of bank and microfinance services. A lack of understanding of credit processes and the role of credit bureaus also places women at a disadvantage;
• Attitude of banks : only one out of South Africa’s four major banks is contemplating a specific programme to increase its share of women-owned enterprises;
• BEE code targets : codes and industry charters do not have sufficient targets for women’s financial services outreach or business activity;
• Lack of awareness of development finance: despite the resources available from private and public development finance institutions, few women in business know about the different institutions, their products or how to access them;
• Lack of financial confidence : overall, women have less financial confidence than men; and
• Lack of appropriate products : bank services and products, including savings products are often unaffordable, and the emphasis on collateral and asset-based lending disqualifies most women from accessing business loans.

Although the survey concentrated on women, most of the criteria above apply to all entrepreneurs in South Africa. In light of the above challenges, the FABCOS/KHULA Enterprise Development Fund will be established to focus on assisting Entrepreneurs todevelop sustainable enterprises for the creation of wealth and employment

FABCOS/KHULA ENTERPRISE DEVELOPMENT FUND

Khula Enterprise Finance Ltd is dedicated to the development and sustainability of small business enterprises in South Africa. A leader in its field, it has a proud history of more than 13 years service of involvement in the rapidly growing and economically vital, small and medium enterprise (SME) sector.

The company is a wholesale finance institution which operates across the public and private sectors, through a network of channels to supply much-needed funding to small business. Khula’s channels include South Africa’s leading commercial banks, retail financial institutions, specialist funds and joint ventures in which Khula itself is a participant. Its primary aim is to bridge the “funding gap” in the SME market not addressed by commercial financial institutions.

Established in 1996 and operating as an independent agency under the auspices of the Department of Trade and Industry, Khula is recognized for its reputation as a major force in the development of the SME sector - a status it has achieved through its ability to adapt to the ever-changing fabric and challenges presented by the SME sector.

The FABCOS/KHULA Enterprise Development Fund is a joint fund set up by FABCOS and Khula with the intention of responding to and addressing access to finance challenges through the following interventions:

• Providing financial products to qualifying enterprises;
• Utilizing appropriate mechanisms of determining credit worthiness;
• Using tested software programmes to monitor and help qualifying enterprises to grow and become self - sustaining entities.
• Providing advice and training on an ongoing basis.
• Using experienced mentors and advisors in business support initiatives;
• Sourcing volunteer mentors from successful business owners;
• Sourcing a network/database of black professionals to provide business assistance;
• Providing effective linkages with other business support institutions and similar businesses within the FABCOS Enterprise Development sphere.
• Reducing risk and improving sustainability both through the industry specialized mentoring and corporate partnership programme.

FABCOS is committed to improving access to finance for its members and has established a Members Benefit Fund through which loans above R50, 000 will be granted to members. FABCOS acknowledges the difficulties associated with raising loan finance by SMMEs and has established lending criteria that emphasize business performance.

The funding needs are taken into consideration and FABCOS seeks to achieve an alignment of objectives between the Fund and the business being funded. The Fund invests and provides other forms of support in entities that demonstrate a clear growth potential and decisions are be based on commercial rationale. The Fund also offers the following products, in response to the specific challenges affecting small businesses:

• Financial Literacy: through the use of mentors business support needs are diagnosed and the relevant assistance is provided through mentors and other relevant support structures;
• Lack of awareness of Development Finance Institutions (DFIs): FABCOS syndicates fund ing with DFIs to introduce entrepreneurs to other forms of financial and non-financial sup port where necessary;
• Lack of appropriate products: The Fund also explores alternative forms of financial and non-financial products and utilizes them to address the needs of members;

FABCOS/STANDARD BANK FUND

The Standard Bank Fund is regulated by a Risk Sharing Agreement between FABCOS and Standard Bank. FABCOS carries 50% of the risk of all failed loan repayments.

QUALIFYING CRITERIA

Loans are granted to qualifying FABCOS members in accordance with the criteria set out below:

• The Applicant must be a Sector Member or a FABCOS Member;
• The Applicant’s business must have its main business operations or its primary place of business registered in RSA.
• The business must be run on a day-to-day basis by the owner or at least one or more of the owners who hold the Controlling Interest, where there is more than one owner, and not by a manager.
• The Applicant must comply with all legal and other requirements having the force of law in RSA.
• The business activity and/or assets of the Applicant towards which the proceeds of the Facility will be applied must be situated entirely RSA.
• The business of the Applicant shall be conducted wholly with a profit motive and shall be economi cally viable.
• The Applicant shall be required to demonstrate historical and/or potential viability and the ability to repay the loan.
• The Applicant shall either be an individual or one or more individuals in a private company or close corporation
• The Applicant must have sufficient entrepreneurship knowledge, skills and experience directly re lated to the nature of the business.
• FABCOS’ approach to Applicants with adverse credit listings on the credit bureau is to assess each case in the light of the circumstances which gave rise to the adverse listing/judgment.

FABCOS reserves the right to decline an application for a loan and in some instances Applicants may be required to provide a Minimum Own Contribution. FABCOS’ approach in respect of Minimum Own Contribution is to assess each Designated Application on its merits in the light of, inter alia, the nature/complexity of the funding required, and the financial position of the owner(s) of the Applicant.

 

 

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