South African Banks Don’t Speak ‘Entrepreneur’

On a recent occasion, as an entrepreneur, I applied to the bank for a mortgage bond. I was quite diligent in my application, showing audited financial statements, tax returns and detailed letters from my auditors. My first round was rejected and I was devastated.Why would the banks not give me my bond?

I have had several bonds whilst employed, yet now that I was self-employed they looked at me differently. Am I not the same person, with the same credentials?

They would quite easily give one of my employees a bond based on their payslip, but as a job creator they consider as a risk.

I do understand the dilemma banks have with long term borrowings in that it is not as profitable for the bank. They would prefer to give short term borrowings and charge significantly more interest and bank fees. Let’s however leave that discussion for another time. My issue is that the bank did not see me as an entrepreneur as a bankable option. Why?

Speak to any bank, and you’ll find that the majority of their clientele are small business owners. Yet I find very little packaged for this segment of the market. This is the very segment that is a bank’s future pipeline, so why no packaged products to enable this lucrative area. Let it be said that some banks are starting to see the light, but in my opinion, a lot more needs to be done.

The GEM (Global Entrepreneurship Monitor Report) for South Africa 2012 states “Even though the challenges in accessing finance facing intentional entrepreneurs are well-known and have been extensively debated, banks in South Africa are becoming more conservative, requiring more security and a longer track record which many start-ups do not have.”[pg 45].

The GEM report further states that “Of note were the relatively small amounts of finance needed: just over half (56%) of the early-stage entrepreneurs required R10,000 or less to start their new business. Of the total number of entrepreneurs surveyed, 80% required R50,000 or less to start their businesses, while the remaining 20% needed between R 50, 000 and R 500, 000 as seed capital” [pg 46]

I would like to suggest that each South African bank ring-fences R 50 million for small business development funding. Business loans to a maximum of R 5, 000 are allowed per entrepreneur. That’s 10, 000 entrepreneurs per bank that could be enabled to get their business going.

And please do not get a computer to analyse the bankability of the entrepreneur, get someone with a real heart (literally) to assess the entrepreneur. Possibly even a panel of existing entrepreneurs to assess the viability of the one page business plan. If the entrepreneur is able to pay off the debt within 6 months, he can apply for R10,000 and so on.

In doing so you educate the entrepreneur on responsible credit management processes.

The next dilemma I have is that I don’t think our bankers understand business fluctuations ie the up and downs associated with any normal business, I feel like the natural response is “go to hell, you must be maintain the turnover. Come back to us when you are making money. Then we’ll give you some!”

So all focus is on the high net worth clients – and the start up entrepreneur is the poor step child.

So to the bankers please start taking some “entrepreneurship language” lessons and put the heart back in banking.

[Image via Shutterstock]

8 thoughts on “South African Banks Don’t Speak ‘Entrepreneur’

  1. Brilliant thinking, Jonathan! It’s not like the bankers have to find the money to loan out from anywhere. Sure there is risk involved. But then again, their loan book is securitized anyway.

    Their is a general lack of will. Maybe pressure from their shareholders, or government will help?

  2. Hi Jonathan

    I feel your pain, there is constant talk about nurturing small business enterprises in the SA news, and when the annual budget comes around. However practicality the system fails the entrepreneur and SMEs dramatically every time. There is so much red tape to run a small business, its a full time job simply keeping up with it, never mind actually running your business.

    Concerning your home loan issue, there is actually an opportunity here for an institution like SA Home Loans or Capitec Bank to assess the risk assessment process of SME owners from a better perspective than the standard banks. They could take significant market share on home loans simply by implementing this separate risk assessment process designed for the SME owner. Why not approach one of them with this idea to see if anything sparks.

    The original banks are so backwards, they were built on thinking from the Industrial age and the heads of the company still think this way. Its close to impossible to change a stubborn old mule, so asking them to change is literally pointless. Having someone else do it and simply take away their some of their business is the best way to wake them up to the present and usually results in them changing for the better.


  3. Hi JJ – Thanks for starting the conversation. I’m in a bracket above what you are discussing but I am experiencing the same reluctance from the banks. I’m looking at an investment in a solid business with a track record & I’m able to put-up more than 50% of the investment but they show no inclination to “how can we help you?”. They don’t reply to calls and messages. I don’t know what the solution is but I do know that I am exhausted and frustrated and my bank that spends millions (billions?) on advertising that they are here to help, are not interested in helping me provide employment and grow my business.
    I think that you are flogging a dead horse asking the banks to change. The question is: Is there an alternative to the banks?

  4. Hi Jonathan,

    I have heard so many similar stories from small entrepreneurs generally.
    I don’t have much to add, you’ve said it all…

    Problem is the Big Brothers will not listen, The answer will most probably be a Capitec Bank or some other Bank that is prepared to think out of the box and realize that the intrinsic risk can be channeled and managed.

  5. One word: MONOPOLY

    This is why things are so closed… Why give someone else the opportunity to have some your pie? Cold hearted capitalist thinking behind the banking system…

  6. Been down this road as well! There is absolutely no goodwill from banking institutions in SA.

    Unless there’s some incentive/stipulation from government to make the “Big Wigs” take notice, I personally feel that not much will change in the short term!

    Like they say “Sterkte my maat!”

    Yours in spirit

  7. The drama does not end at banks unwillingness to properly analyse a business plan, etc. The issue of greed also plays a major role. We run a small tourism business 25 km from the nearest town (Clanwilliam). When we enquired at the two banks we use, and two others about credit card facilities, we were utterly shocked and dismayed. On average, they would charge a commission of 6% on sales (which one can still consider), but a minimum monthly payment of around R600 irrespective of the claims! Needless to say that we declined (you can imagine where I advised them to go). For overseas guests who need to make a deposit on reservations, we make used of PayPal – and the commission is about 4%!

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