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Cape Town – Established entrepreneurs facing South Africa’s tough economic environment needed focused support, a niche bank that supports small business said.
Mercantile Bank CEO Karl Kumbier told Fin24 that while entrepreneurs were hampered by a variety of challenges like labour issues, including strict regulations and countless strikes, they were resilient and had the focus to adapt and survive.
Africa growth
“There is sluggish growth in South Africa at 1%, so entrepreneurs are operating in a chaotic environment,” he said. “Many businesses are looking to the rest of Africa for opportunities.”
Mercantile Bank, which was started in 1989, is now owned by the biggest bank in Portugal, the state-owned Caixa Geral de Depósitos (CGD). Entrepreneurs operating in Angola and Mozambique benefit from excellent synergies due to the CGD banks there, he said.
“I am a big believer in Africa,” he said. “As someone who worked in Ghana for two years, I see the potential in those markets. It was exciting being there as there was so much opportunity, but it’s very tough now.
“A lot of global businesses are setting up in South Africa as a springboard into Africa,” he said.
Established entrepreneurs key
He said small business owners needed the full support of their bank, which was why Mercantile had financial managers who dealt directly with their clients and who were multi-skilled to resolve any business banking query.
“We understand how entrepreneurs think,” said Kumbier. “We build strong relationships with our customers and structure their needs around what they want.”
Mercantile does not focus on start-ups, which Kumbier said had an 80% failure rate, but rather focused on established businesses that make a turnover of between R5m to R1bn. “There is too much emphasis on start-ups,” he said. “There should be a lot more attention given to established businesses that have the potential to grow and create more jobs.
“We helped a security company grow from 2 000 employees to 12 000 in six years,” he said. “We are also very interested in collaborations and partnerships with businesses, as we are inspired by the entrepreneurs we work with.”
A Fin24 user who wanted to expand his business asked for advice. The question was already answered by an expert on Fin24, but Mercantile Bank wanted to offer more advice.
Fast food business owner Zakhele who started out three years ago, is now looking to expand. Seeking advice, he writes:
"I started a fast food business on July 20 2011. I currently employ 4 people. I have just bought a new business place - a very busy location - and am looking to expand. I need financing to start the business as soon as possible so I can generate more revenue.
"My problem is that because the business started with not sufficient operation capital I am unable to bank and have proper financial records. Who can I talk to assist me with financing to expand my business."
Karl Kumbier, CEO of Mercantile Bank, responds:
Securing start-up or expansion finance is a common problem for many smaller entrepreneurs despite there being a number of providers of this sort of funding in the market place. Zakhele’s story is representative of the issues many business owners face.
The second round of the SME Growth Index – the most comprehensive gathering of firm-level data undertaken in South Africa – found that the majority of company owners believe it is becoming more difficult to do business.
Strict regulations, lacklustre economic conditions and a lack of finance were some of the reasons given by respondents. The SME Growth Index is a multi-year research project geared towards establishing evidence-based understanding of South Africa’s SMEs.
Business owners have to make sure they make a profit even in a difficult economic climate where trading conditions are tough. They need access to finance to help them take advantage of market opportunities and attractive potential investments. I can empathise with Zakhele’s situation.
It is reasonable to expect that someone with an entrepreneurial spirit would want to expand their business once it reaches a certain size – many fast-growing SMEs in South Africa are taking advantage of the opportunities presented by Africa and we think entrepreneurs should be encouraged to do so. Entrepreneurship is a valuable resource as it contributes to the economy and creates employment for people who would otherwise not be able to support themselves.
So where does this leave an entrepreneur such as Zakhele? Smaller business owners are often supported by more informal support structures such as friends and family who invest in their businesses and allow them to start up and grow. There are however several other entities such as the dti (Department of Trade and Industry) and Sefa (Small Enterprise Finance Agency) who would look at providing the types of funding Zahhele needs.
Another interesting avenue worth considering is the Hope Factory, an enterprise development non-profit organisation that develops black business owners through a well-structured mentorship programme. The initiative, which Mercantile Bank helps sponsor, helps entrepreneurs achieve their vision to grow their business and ultimately to give back to the community in which they operate.
In the programme a business owner such as Zakhele could also address the other challenge he refers to and would learn the basics of bookkeeping and accounting, which will enable a record to be kept of all business financials. Financial records are often a prerequisite to accessing finance as they show the financial performance, stability and growth potential of the business.
The Hope Factory programme equips a business owner with the skills to have the confidence to approach any financial institution for funding and the knowledge to be a better business person. Many entrepreneurs who have been on the programme feel it has created a lasting benefit to both them and their businesses.
The Hope Factory
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