Bridging the expectations gap between SMEs and banks to facilitate finance


SME_BusinessCase.jpgFinding a solution to the perceived “shortage” of ready finance available to local start-ups, could involve assisting entrepreneurs to better understand the role of money in their businesses, and giving them the means to manage it appropriately. If SMEs have viable operating models in place prior to approaching finance institutions, and can clearly define the innovation and value of their idea, there is a far better likelihood of them securing finance says Shawn Theunissen, head of CSR at Growthpoint Properties and Property Point (Growthpoint Properties’ enterprise development programme), in this month’s SmartProcurement.

Having a reliable source of finance is a critical aspect of any business’ continuity, especially when one is operating a start-up. “Between investing in infrastructure and financing the day-to-day operations of one’s business, entrepreneurs often find their cash reserves and resources stretched to the limit repeatedly,” says Theunissen. “For many, the immediate solution is to try and secure finance through a bank or other financial institution. However, what most don’t realise is that funding might be declined owed to a mismatch between their and the potential financier’s objectives.”

Property Point’s experience as an enterprise incubator has shown that most SMEs do not have the requisite business models to support and make use of the very funding they are trying to access when they apply for it, explains Theunissen. “Instead of having an operational model in place that allows the business ‘to do business’, many SMEs try to access money to put this model in place.”

In cases like this, the entrepreneur will have effectively failed to prove the “business case” for financing: if the SME is not operational, it cannot make money. If it cannot make money, it cannot repay the financier’s loan. As such, entrepreneurs need to appreciate the difference between paying for the company’s operations (i.e. all the set-up costs) and paying for the company to operate (i.e. assisting it to do business and generate cash flow).

However, Theunissen maintains that having the right operational model in place goes beyond “doing business”. It also means that an entrepreneur must have the resources and skills available to make the best possible use of the loan.

ShawnTheunissen2.jpg“Again, based on our experience, we have seen cases where loans become burdens as opposed to enablers in certain small businesses. This is usually owed to a lack of financial experience and accountability, with entrepreneurs either being too scared to use the money, or using it very sparingly or inappropriately.” Without knowing how to use financial products, access to these can become a moot point in many instances, with poor cash flow being confused with a lack of funding and funding opportunities.

Theunissen says that this is why Property Point works with the businesses on its programme to develop appropriate operational models that will assist them to achieve growth, and get them to a point where they are operationally ready to make use of funding. “Entrepreneurs are also equipped with the tools they need to understand management accounts and the accounting process. In this way, they stand a far better chance of not only accessing the finance they require, but of using it to make a sustainable success of their business,” he concludes.

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