Financial Bootstrapping Techniques Used By Unfunded SMEs in South Africa.

Abstract

The aim of this study is to investigate the financial bootstrapping techniques used by unfunded SMEs in South Africa. Qualitative research was conducted to look at the challenges that entrepreneurs face in their attempt to secure funding from financial institutions and to explore the bootstrapping techniques they used to start their businesses. The research does not only consider entrepreneurs who had applied for funding but also those who made the choice not to apply for funding. The reasons they made this choice are also examined. Fifteen interviews were conducted with existing entrepreneurs in Gauteng. The sample was a mix of entrepreneurs who had applied for funding and those who had opted to start their businesses without the help of external finance. The interviewees and the literature cited access to finance as a major obstacle that entrepreneurs face. Some of the reasons for this included: most entrepreneurs had little or no collateral; the entrepreneurs were too risky due to opacity problems; and the financial institutions‟ requirements were not met. The bootstrapping technique used by each interviewee was explored and similarities and differences were highlighted. The interviewees who took part in this study used a wide range of techniques which included using their own savings, taking odd jobs or working part time, using their homes as offices and sharing resources. Many of these methods were supported by the literature derived from studies conducted in Sweden and the USA.