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]