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Money options

Sep 10 2010 13:43
Marc Ashton
Johannesburg - While the "big four" banks are making strides to get into the small business financing market, there are plenty of other sources of funding for would-be entrepreneurs.

In recent months, venture capital firms (VC) have begun to flex their muscles backing an increasing number of promising businesses in the technology sector in particular.

Last week, 4Di Capital backed technology security firm FireID to the tune of R48m. This follows on other venture capital investments in the likes BetTech, Skyrove, Springleap.com, ChessCube and AD Dynamo through a series of VC partners.

It is not just in South Africa where money from venture capital firms is now being deployed.

"An improving exit market translates into distributions back to limited partners, a dynamic the venture industry as a whole has not enjoyed since the financial crisis began in 2008," said Mark Heesen, president of the National Venture Capital Association in his September feedback to the industry.

Apart from the traditional banking channels and venture capital, there are also an increasing number of specialist funds being created for entrepreneurs.

For instance, there is the well-know Khula Enterprise fund while Old Mutual has rolled out its Masisizane funds which have R100m in small business financing. Financial services groups Sanlam and Sasfin also have units which specialise in lending to entrepreneurs.

Darren Gorton, a South African entrepreneur and operator of the Outhink blog told Fin24.com that he believed that the South African government needed to be more proactive in putting together initiatives which support investment in small businesses. It could not all come down to the private sector, he said.

"I wish government would see this is in South Africa's best interests and start putting in place specific programmes to encourage more start-ups and to improve small business success rates. This could take the form of direct changes such as economic stimulus and tax rebates," he said.

Gorton uses the example of power utility Eskom as a perfect example of where smart financing for supporting industries could have prevented some of the problems the business now faces.

"Simply put, government monolopies and legislation have not encouraged entrepreneurship in this field, if that had been the case, we would have been ahead of where we are now," he said.

Enterprise development

A fourth area which experts have identified is that entrepreneurs are likely to find increasing financial support from enterprise development (ED) funds. This involves corporates such as Sasol committing a percentage of its profits to support investment in small businesses in the sector. It is estimated that more than R2bn in ED funds will be allocated to the sector by 2015.

However the risks that are inherent with investing in financing for the small business sector become apparent when one looks at the financial reports from specialist financier Business Partners.

During the 2009/10 financial year, the Business Partners Group's profit declined by 27% to R94.6m. During the year, the company concluded a total of 369 investments and financed deals to the value of R713.6m, this was down 18% on the previous year.

Chairperson Johann Rupert told investors: "Many SMEs experienced very challenging trading conditions and, for most, the focus was on survival rather than on growth or business expansion. In many cases lower turnover, margins and net profit seriously affected cash flow, and Business Partners had to proactively assist clients with the management of their monthly repayment obligations."

- Fin24.com


johann rupert  |  entrepreneur
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