The Major Reasons SMEs Are Getting Rejected for Funding

Updated on 29 November 2018

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funding rejected SME Landscape Report

Requiring funding for your business is still one of the biggest challenges a lot of SMEs have. In a recent SME Landscape Report released by SME South Africa, around a third of SME owners (32.4%) who took part in the survey, indicated that there is a need to increase access to funding.

This finding was revealed as an answer to an open-ended question about the areas of critical support needed to improve business performance.

The report An Assessment of South Africa’s SME Landscape: Challenges, Opportunities, Risks & Next Steps’ 2018/2019 also said that only six percent of the respondents have received funding from the government.

The survey, commissioned by the Adclick Africa Media Group, was conducted with 1157 South African SME owners in SME South Africa’s database with the study conducted by independent research consulting firm, In On Africa.

The report offers a comprehensive assessment of the state of SMEs in South Africa, with a focus on the key challenges, opportunities, risks and proposed next steps.

SMEs not funding-ready

The report revealed 94% of the survey’s respondents indicated that they have not received funding from the government. According to the report, the top three sources of government funding were government grants (21%), the Department of Trade and Industry (17%) and the National Youth Development Agency (16%).

“We are under so much pressure as the government to fund but we also do the non-funding support, because some businesses are not ready for the money (funding),” explained Mhlanganisi Masoga of the Department: Small Business Development.

Mhlanganisi was speaking at the launch of the SME South Africa’s SME Landscape Report which recently took place in Johannesburg.
Mhlanganisi said that their challenge is to balance the model: funding versus non-funding support.

Fifty percent of SME owners who indicated that they received non-government funding, said they had sourced funding personally and/or from friends and family. This was followed by business incubators (24%) and the big banks (20%). Respondents were allowed to give more than one answer to the question.

This is in support of current literature on small businesses which asserts that most SMEs are self-funded.

Bianca Bloem of Spartan, a company that finances SMEs, said she says she finds it interesting that there is a big funding gap for startups that are in their formative stage. She also attended the launch of the SME Landscape Report.

Bloem added that as funders they also find that many SMEs do not have their documentation in order or there is a lack of managing accounts. “But, we do work with SMEs that have a good business acumen. We also don’t ask for business plans.”

More findings on funding

Several findings (on funding) of the report include:

• SME owners who indicated that they received non-government funding, the majority of funding was sourced personally and/or from family (50%);
• Nearly a quarter cited business incubators as their primary source (24%) while a further 20% pointed toward large financial institutions such as big banks;
• Out of the 1,157 SME owners surveyed, 33% indicated that they have been refused funding;
• An open-ended question was asked about areas of critical support. Through a thematic analysis of their responses, it was found that, around a third of SME owners (32.4%) indicated that there is a need to increase access to funding.

Reasons for funding refusal

SME owners also shared in the survey what the reasons are for being refused funding. The reasons for being refused funding include insufficient operating history (50%), inadequate cash flow (40%), limited collateral (34%) and a bad credit score (27%).

Yves Sangasam, the co-founder of the tech company Fika, said that he can relate to the section in the report that talks about acquiring funding and its challenges. “I have experienced being rejected for funding but I got a vague answer to why I was rejected.”

You can register to download a copy of the report, here.

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