You have got over start-up problems, a bumpy ride through your first year and the loss of a major client. Already, you are all too familiar with late-paying debtors, which lead to cash-flow problems, which force you to the edge of your bank overdraft, which prompts anxious conversations with the bank manager. But so far, you have made it. You may be turning the corner. Orders are starting to pick up. Last week, you secured a sizeable repeat customer.
Problems over? No chance. Good news brings what may be your biggest difficulty yet - how to fund the growth you have been working towards. You need more stock. You may need more equipment or more staff. If you can borrow against the equipment, you are lucky. No security, no credit, has been the mantra of SA's big banks.
The irony of this predicament is that small businesses form the growth driver of the world's largest economies and are driving much of global job creation. This situation is mirrored in SA; Stats SA says that locally, eight out of 10 jobs are created in the small-business sector. However, many small businesses are in a precarious position and many of these jobs are lost within a year. Government's SME focus is clear. In 2002, trade & industry minister Alec Erwin said small businesses should contribute 60%-80% of GDP within the next 10-15 years.
Research by the Global Entrepreneurship Monitor (Gem) (2003) suggests that SA small businesses have no more difficulty raising finance than small business owners from other developing countries. However, Gem notes that despite government's focus on growing the SME sector, entrepreneurs generally use their own savings or funds raised through their family and friends rather than institutional finance.
Why is this? The evidence from Gem suggests that the main reason is that many black entrepreneurs do not have access to collateral acceptable to the banks and certain other financiers. Many important personal assets in SA townships are either partly or totally disregarded by banks in calculating an individual's net asset position. This includes property. On the whole, local black entrepreneurs do not have access to collateral and the networks of wealthy individuals - built up over the years by white businesses - who could provide angel financing to promising ventures.
Another explanation for the widespread belief among small businesses that raising finance is difficult, suggests a venture capitalist, is that entrepreneurs don't research the small business finance sector before they start. "Every day, business plans land on my desk that are poorly done, don't have all the information I need or shouldn't have been sent to my firm in the first place," he says.
"Our profile, widely available, states that we want high-growth, hi-tech businesses with export potential. That should be enough to put off entrepreneurs wanting finance for a bed & breakfast, for example. But it doesn't."
