Banks 'waste money on small firms'

Johannesburg - Small business guru Allon Raiz does not mince his words on the subject of the relationship between banks and their attempts to service the small- to medium-sized enterprise (SME) market.

"Financing institutions are throwing money away and people are getting deep into debt," said Raiz, slamming the traditional lending arrangements between banks and aspirant small business owners.

Raiz was speaking in Sandton following the announcement that Nedbank had backed his small business incubator Raizcorp. Nedbank's initial investment of R3m will bankroll 12 up-and-coming South African entrepreneurs.

A key concern for Raiz was that traditionally banks had been prepared to lend funds to SME owners who were ill equipped to manage the funds they had received. This led to a fractious relationship as soon as the SME owner faced a cash-flow crisis.

"Money without the knowledge to manage that money and make more money is useless," he said.

Mark Rose, head of business development for Business Banking at Nedbank, conceded that the bank is still trying to get its head around the small business sector.

Rose told Fin24.com: "It has been hard trying to change the culture of everyone involved in business banking at Nedbank to appreciate what goes into a small business."

Even with the backing of Nedbank, the Raizcorp initiative has its work cut out for it.

Gavin Friedman from the incubator pointed to a Sector Education & Training Authority (Seta) venture which had provided financing and business support for 981 South African small businesses over the last two years. Of those companies backed not a single one survived, something Raizcorp attributes to the lack of experienced, hands-on small business experts to assist in developing the entrepreneurs running the businesses.

Friedman also pointed to an international entrepreneur's survey conducted in 2006, which showed that just 5.29% of the SA population considered themselves "entrepreneurs".

"This means that we have fewer entrepreneurs per capita than places like Uganda," he said, adding that this was an unsustainable situation when the country had such a high level of unemployment.

Friedman emphasised that a distinction had to be made when defining entrepreneurs. The survey, he said, defined entrepreneurs who were looking to build businesses and did not include informal traders who were doing business simply to survive.

- - Fin24.com