Endeavor White Paper 2013: The State of Entrepreneurship in South Africa

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ACCESS TO SMART CAPITAL Not every form of finance or investment is "smart". For high-impact entrepre- neurs "smart" capital is generally seen as investment which brings with it added value. This value can take many forms, such as mentorship or a sharing of busi- ness experience, access to networks in your industry, or active participation in the business. According to the panel, there has never been a better time to access funding in South Africa – from start-up to growth and exit. The challenge is to identify the different sources of funding and match those with the needs of your businesses at any particular stage. "Smart" funders play a different role from banks, debt funders or investors. And, typically, the provider of smart capi- tal will want to ensure that the recipients of their investments have the proper experience to execute on opportunities and to create the partnerships that are crucial to the success of a business. Debt-funders tend to look at cash-flow, stability and the leadership team. Banks, however, would want a collateral ratio of 1:1 in fully secured lending. In these cases, the entrepreneur's track record is important and the bank would want to be sure that the applicant could repay the loan and service the debt. It is also worth remembering that banks try to get the cheapest form of money by looking at risk versus reward. The more risk there is, the more they would need to get paid for it. Banks' preference is to secure a loan with equity and to leave the running of the business to the entrepreneur. They do not see them- selves as business operators. There is a view that South Africa's extremely uncompetitive banking sec- tor presents a further serious barrier to those wanting to access finance. The highly regulated environment forces banks to be conservative in their poli- cies. But, government's demand that they lend to entrepreneurs, as part of transformation, ignores the need to be conservative. The result is a profound lack of dynamism within the banking system. Governments Enterprise Development mechanism is a further source of fund- ing for SMMEs. The programme provides capacity support and mentorship that they desperately need. All entrepreneurs in South Africa, wheth- er they own early-stage or advanced- stage businesses, would benefit from a centrally shared source of information on funding. The private sector could sup- port Government in building and main- taining it, while every institution that provides funding to entrepreneurs would be able to post information about their programmes and offerings. b SMART CAPITAL Smart Capital 8 Heather Lowe, Head: of Enterprise Development at FNB Commercial.

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