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Size matters in small business, so focus on funding the job creators

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Start-ups employ few people, but at present financing is aimed at them rather than at more mature job-creating SMEs

Lulama Ntlanganiso started out on a small scale selling sweets to passersby, but now has a stall selling goods such as food. sweets, cushions, hats, belts and shoes. August 2017. Picture: QHAMANI LINGANI / DAILY DISPATCH

Recent international research points to small businesses playing an important role in job creation, but only over time. It is only once the business has reached the 20-employee mark or the three- to five-year milestone that you start seeing a positive employment effect. We’ve got to realise that job creation by small businesses is by no means immediate, but rather subject to their future growth.

The cost of missed opportunities and lower growth for local SMEs has a major knock-on effect on the economy. It is estimated that SMEs make up 91% of formalised businesses, provide employment to about 60% of the labour force, and their total economic output accounts for about 34% of SA’s GDP.

SMEs must also show they can scale their infrastructure and systems, and that they have potential to grow. The financier must then understand what infrastructure needs to be financed to scale. Lastly, if an SME secures a contract that is larger than its previous projects it will need finance to follow through on this project. Financing is a way to gain access to the market, and for the SME to follow through on delivery.

 

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