While I do not advocate that development capital should be handed out on an ad hoc basis, the current practice is also not working. Without exception, whenever the South African government makes development capital available for SME development, the caretakers of these funds generally fail in two ways.
Firstly they are slow to respond, with 6 months being the average waiting period to access the funding. As any entrepreneur will advise, too often the opportunity is long gone 6 months later. Entrepreneurship is about responding to market demand when it exists. Very few entrepreneurs are that far ahead of their competitors that time is not if consequence.
Secondly they insist on using traditional banking credit scoring methods to allocate funds. Most of these people will fail any traditional banking scoring system. Unfortunately bankers and accountants are in greater supply than people able to assess business plans, hence the focus on credit scoring.
In my humble opinion, the focus should be on the people and the business plan. Are they matched? Are they suitable for the intended business? Is the business in an appropriate sector? Is it in a growing sector? IS it within the government favoured sectors for future development and growth? Do they display a certain percentage of the indicators of an entrepreneur? Predicting entrepreneurial success is far from an exact science, but is that not the point of development capital? To develop entrepreneurs? To develop assessment skills?
We need to move away from the current stereotypes and find a new way forward, so that many more successful and growing businesses can be developed.
Rob Smorfitt
To learn more about this author, visit Rob Smorfitt's Website.
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Rob Smorfitt
(Visit Rob's Website)
Based in Pietermaritzburg, South Africa.
Married with 3 children (22, 21 and 14).
Have an MBA and am currently doing a PhD
in entrepreneurial success. I have been
self employed since 1982. I have started
26 and bought 5 businesses since then.
Most were sold again and a few were shut
down because of a lack of profitability.
Many were run by staff or family while I
worked in full time employment in my
bigger businesses. 6 books written in SME
and Project Management educational field.
Written articles for various magazines,
newspapers and websites.
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