In an effort to address the high failure rate of small businesses in South Africa Business Partners, the risk finance company for formal SMEs has, with the support of the Swiss State Secretariat for Economic Affairs (SECO), launched a R50 million (US$ 4 million) Technical Assistance Programme (TA Programme) for SMEs in South Africa aimed at improving the business, labour and environmental performance of SMEs and help to increase the profitability of their businesses.
Essentially, the programme helps business owners who are ready to scale their businesses, to up their skills levels by providing specialist sectorial knowledge to operate on that level.
According to Business Partners, the majority of business failures can be attributed to financial, management and reporting factors that can ordinarily be addressed through mentorship and technical assistance support throughout a business’s life cycle.
This is supported by the 2014 Turnaround Management Survey which estimates that as much as 36% of business failures were caused by inadequate financial management.
Speaking at the launch in Johannesburg yesterday, Ben Bierman, MD of Business Partners Limited says, “In the 36 years of our existence, we have learned that providing SMEs with finance alone is not enough; the sustainability and prosperity of businesses increases significantly when the finance they receive is coupled with well-planned, well-executed and accurate technical assistance.”
The programme involves SMEs approaching Business Partners for finance and mentorship and/or technical assistance support services ranging from legal and accounting assistance, distinct training skills for employees to the creation of information and communication technology (ICT) capacity within the company.
For the first phase, this TA Programme aims to support over 1500 SMEs – all of them existing or future Business Partners clients – and the technical assistance loan amount will be capped at 30% of total exposure to Business Partners per business owner.
The technical assistance loan is interest-free and the repayment thereof is aligned to the business’s free cash flow improvements that are expected as a result of projected operational improvements brought on by the introduction of technical assistance in the business.
Bierman says they believe that when SMEs are required to repay these funds, they apply themselves better to the benefits of the technical assistance. “Once repaid, the funds can be recycled to other deserving SMEs, thus increasing the overall socioeconomic return.”
Business Partners will contribute R25 million (50%) of the funds for the TA Programme and SECO will contribute the remaining R25 million (50%).
Training and consulting services will be provided by consultants. The entrepreneur is involved throughout the whole process, says Bierman. “They choose the supplier and what they want to achieve, they then sign off when they are happy.”
Returns On Investment
Referring to their experience, Bierman reveals that an independent study on their technical assistance programme shows that their methodology of coupling finance with technical assistance has been able to generate significant socioeconomic returns.
The study showed that all companies that were beneficiaries of technical assistance reported a 26% increase in jobs created by the business supported, a 32% increase in turnover and a 79% increase in profit.
As South Africa’s unemployment figure rose to its highest level in 14 years, reaching 27.7% in the first quarter of 2017, and considering that SMEs are one of the key contributors to employment creation in the country, the TA Programme will also go a long way towards supporting South Africa in attaining its corresponding objectives as described in the National Development Plan, notably to reduce the official unemployment rate to 6% by 2030 which the Government expects will mainly be driven by SMEs.
Bierman admits that achieving this objective is going to be no easy feat, especially in light of the country’s muted economic growth and rising unemployment rate but views the TA Programme as a unique offering by Business Partners to not only enhance initiatives aimed at realising this goal for the country but to assist SMEs in their quest to create wealth for themselves and jobs for their communities as well.
“Through the support from this programme, business owners will be supported to better manage their businesses and improve their chance of survival and ultimately their profitability and competitiveness,” says Bierman.
He adds that often SMEs are praised for their ability to create jobs, yet aren’t always supported to do so. “Running a business requires multiple skills, ranging from people management to finance and sales, in addition to the technical expertise and business owners cannot be expected to possess all these skills. This is the gap that our TA Programme aims to close.”
Speaking at the event, H.E. Helene Budliger Artieda, Ambassador of Switzerland to South Africa, says that a thriving SME sector is what these two countries have in common. “Although Switzerland is known abroad for some of its big companies, 99% of its companies are SMEs and these provide 66% of Swiss jobs. It is clear that South Africans have an incredible entrepreneurship spirit waiting to be unleashed, and we look forward to contribute to it and to the collaboration with Business Partners, whose expertise and experience with similar projects will be key contributors for the success of the programme.”
Bierman concludes that a programme of this magnitude is significant to the future socioeconomic development of South Africa and acknowledges the crucial contribution being made by SECO in this respect. “Through working with like-minded development financial institutions whose mandate and objectives are aligned in the need to address key challenges facing SMEs, we are able to effectively grow the SME sector in South Africa as a means to foster economic growth, job creation and economic inclusion.”