How much money people say they need to run a small business in South Africa

Online finance portal Finfind has released its inaugural South African Small, Medium and Micro Enterprise (SMME) access to finance report.

Sponsored by the South African SME Fund, the report is based on a data sample of 11,033 SMME funding requests, making it one of the most comprehensive studies on access to finance in the sector.

Some of the key findings in the report include the need for funders to develop new credit scoring models to address the large credit gap, said Darlene Menzies, CEO of Finfind.

She added that, currently, banks struggle to fund SMMEs.

“This is often due to a one-size-fits all approach to this market segment and applying traditional lending methods that rely on collateral and conventional financing scorecards,” she said.

The report also highlights the significance of the SMME credit gap, which is estimated to be as large as R346 billion.

According to the report, the top four reasons SMMEs requested funding in 2017 was startup capital, buying equipment, expanding businesses and working capital. Together these make up 62.4% of the total SMME funding requests, it found.

Nearly half (44%) of the SMMEs who requested funding were for amounts less than R250,000, while 73% of the loan amounts requested were for R1 million or less.

The report found that the median size of funding requested by an SMME is R400,000. Of this:

The median size funding request from a micro (o-5 employees) business is R300,000
The median size funding for a very small (6-10 employees) business is R500,000
The median size funding for a small (11 – 50) business is R1 million
The median size funding for a medium size (51 – 100 employees) business is R3.6 million