In South Africa, funding for SMME’s (Small, Medium and Micro Enterprises) is not readily accessible due to a number of factors such as:
- SMME’s are perceived not to have the correct financial systems and controls in place, or to have outdated or questionable financial statements, as the ‘public interest score’ calculation in the Companies Act, 2008 precludes most SMME’s from the requirement of having their financial statements audited.
- The financial leverage is not at levels acceptable to the commercial banks.
- Commercial banks regard many industry sectors as high-risk. Assets, such as properties, are often owned by the shareholders of the SMME or other legal entities which are not the borrower of the funds.
- In order to raise the capital required, shareholders often dilute their shareholding in favour of new shareholders, which is the most expensive form of raising capital.