Funding not sole constraint to starting an SME, says Nedbank

Speaking yesterday, 3 May 2011, at the Africa SME banking conference in Johannesburg, Graham Erasmus, head of sales, channel and segment management at Nedbank Small Business Services, vehemently refuted the 'street logic' that funding alone is the main obstacle hampering business-minded people to start an SME.

Issue of risk applies

"We want to lend to SMEs but the issue of risk applies. Banks focus on the abilities of entrepreneurs themselves and not purely on their ability to provide collateral," Erasmus said, adding that scarcity of skilled entrepreneurs is a major concern for banks.

"The main problem for an entrepreneur is not finding skills, but retaining skills. New recruits often leave when they gain experience," he explained.

"Electricity is also a big problem even in countries with a good infrastructure as South Africa. There is also the fear that comes from asking yourself questions such as 'will I be able to run this business?'"

Crime and corruption, including business robbery and nepotism, seem to be the number one obstacle, especially in countries such as SA and Nigeria, where these two scourges are said to have a devastating effect on SMEs. Erasmus also evoked the issue of fraudulent tendering, which many observers have likened to a horrible 'transmissible disease' in SA.

"Gaps in business plans, proven viability (proving that an idea can work), inadequate cash flow projections (poor management of financial activities), lack of business skills and preparedness are the underlining reasons for many business failures," he said.

Blind leading the blind

Erasmus wondered whether bank employees are skilled enough to be passing on this information to their clients, fearing that failure to do so might amount to 'the blind leading the blind'.

"Why do businesses fail? 82% due to internal factors and 18% to external factors," he said.

He cited the following interventions banks can provide to support small businesses and reduce business failures:

• Management skills (business seminars)
  
• Business planning (mentorship)
  
• Financial and cash flow planning

Erasmus stressed that the provision of non-financial interventions to upskill entrepreneurs from a skill point of view will make lending easier.

"If you need a loan, you will also get a mentor that can help you for a period of time into building your business into a sustainable project."

Need for sustainable businesses

Using SA as a case study, Erasmus hailed the SA government's clear intention to promote jobs creation. However, he warned that job creation on the scale required in SA cannot be achieved by focusing on one person 'survivalist' businesses.

"Businesses run by informed and able entrepreneurs are far more sustainable and create employment for five to 10 people on average," he argued.

"Education of entrepreneurs and the creation of an entrepreneurial framework are key to achieving governments' objectives.

"SA has about 1.5 million SMEs. Imagine what it will do to jobs creation if each one were to employ at least 10 people."
Lastly, he emphasised the need for collaboration between banks, governments and entrepreneurs, stating that it constitutes a solid foundation towards building a successful entrepreneurship.

Nedbank is 54% owned by Old Mutual, and is one of SA's Big Four - a group that includes Standard Bank, Absa and FNB.