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Struggling to get finance – one of the top reasons South African entrepreneurs fail

Struggling to get finance – one of the top reasons South African entrepreneurs fail

Almost 30% of the country’s entrepreneurial businesses shut their doors last year due to difficulties in accessing the funding they needed. 

It was the second major reason for the discontinuance of South African businesses, following only after failure to maintain profitability. These are the findings of the latest Global Entrepreneurship Monitor (GEM) South Africa Report, an annual study, now in its thirteenth consecutive cycle that generates relevant information on entrepreneurship, and enables South Africa to compare its entrepreneurial activity against the efforts of other African and international countries.  

GEM also reports that with an established business rate of just 2.9%, South Africa significantly lags behind the Sub-Saharan African average of 16%.  The low level is significant because it is these businesses that are providing the bulk of the country’s employment opportunities.  Low established business rate and high unemployment go hand-in-hand.  While the country’s trend for established business activity has increased since 2001, the discontinuance rate also continues to increase, which means that in South Africa, we are losing more small businesses than we are creating.

 It’s clear that improvements need to be made to assist South African small business owners in accessing the funding they made need to avert cash flow crises, or to take advantage of opportunities to strengthen and grow their businesses. 

“Out of all business sectors, small businesses face the biggest challenges in raising funding, with the least resources available to them,” comments David Lewis, CEO of Retail Capital, “A lack of available working capital funding can have significant consequences for small businesses, directly impacting their survival and growth prospects.”

Retail Capital, a leader in alternative funding, introduced the business cash advance product to the South African market in 2011.  Their core objective was to provide accessible, flexible and convenient alternatives for businesses to secure working capital.  Since then, they have provided small businesses with over R350 million in working capital.  As active supporters of South African small businesses, they partner with their customers to provide a tailored, flexible funding option that aligns with their business model.

According to a Retail Capital survey sent to over 20,000 small businesses, almost half of the respondents said that ‘access to working capital and cash flow’ was the single biggest challenge that they faced. This is counter-productive considering that small business contributes over 65% of South Africa’s employment and 50% of the country’s GDP.  Small business owners’ lack of access to finance is a significant problem for the South African economy, hindering job creation and growth.

What was interesting to note was that the most common uses for a lump sum of working capital were opportunistic:  44% of those surveyed selected ‘desire for expansion’ as a reason for expenditure of working capital, with 37% citing equipment and 37% renovation.  Only 22% identified that they would utilise the lump sum for debt settlement.

To date, Retail Capital has helped more than 700 small business owners across the Hospitality, Restaurant, Retail, General, Beauty and Wellness industries. Since 2011, the customer base transactions has grown from a zero to over 1 300. Advances have ranged from as little as R30,000 up to over R3m to meet business needs such as equipment purchases, remodelling, expansion or new marking collateral.

Most of Retail Capital’s satisfied clients return to gain the further benefits from re-advancements, appreciating the personal service and authentic face-to-face relationships.  An understanding of the challenges facing small business owners underpins the Business Cash Advance model, enabling an accessible, flexible and convenient alternative to traditional small business loans.

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