A framework for facilitating bank funding of black SMEs in South Africa

Abstract

Small and medium-sized enterprises are the fundamentals of economic growth. Younus (2021) mentions that the success of a country depends heavily on the performance of its SMEs sector. Business Unity South Africa (BUSA) (2019) illustrates that many private sector employments in South Africa come from Small Medium and Micro Enterprises, which generate 65% of all employment possibilities. This is evidence that SME’s plays a significate role in the economy of South Africa. But still, they face various of challenges regarding access to funding especially through the Banks. The success or failure of SMEs is determined by their financial viability (Schwab, Gold, and Reiner, 2019). Due to the significant default risk among SMEs and the inadequate financial facilities, access to formal funding is limited (Kauffmann, 2005). In South Africa, the funding landscape for SMEs is complex, with various challenges facing them. These challenges include a lack of collateral, high-interest rates, and stringent loan requirements, among others. With high interest rates, a lengthy application procedure, and onerous collateral requirements, many SMEs cite financing as the most difficult aspect of growth (Durst and Gerstlberger, 2021). Seldom are small enterprises able to meet the conditions set by banking firms, who perceive SMEs as a risk due to insufficient guarantees and an inexperience of their ability to repay loans (Kauffmann, 2005). Durst and Gerstlberger (2021) assert that due to a lack of established track records for success, small and medium enterprises (SMEs) are perceived as high-risk ventures by capital providers. The ability of SMEs to obtain external financing or internal capital plays a crucial role in their capacity to initiate new ventures, enhance existing ones, and achieve overall success (Younus, 2021).