Credit provision by banks: a case study analysis of small businesses in South Africa

Raphael N Ngcobo

doi:10.21511/bbs.12(4).2017.06

Abstract

Small business sector is considered as an important economic driver by many countries. In South Africa, small business sector has been acknowledged as the driving force to boost the economic growth and an important source of job creation. This article aims at identifying factors that are a challenge in obtaining bank finance by small businesses in South Africa.Primary data for this study involved a survey questionnaire directed to owners of small businesses operating in Ekurhuleni Metropolitan area, Gauteng, South Africa. Factors that were deemed to influence bank loan decision were examined. The research findings revealed that factors such as age of business, business plans availability, educational background of business owner, experience of business owner and availability of a collateral have an influence on the bank loan decisions. This research also found that the accessibility of loan funding from banks was a constraint on business operations and growth. The findings of this study indicate that the mentioned factors are a challenge for small businesses in accessing bank loans to fund their operations.The findings of this study will be of great value to small business owners and policy makers in finding solutions to address the identified barriers.

Highlights

A vibrant and growing small business sector is a significant characteristic of a flourishing and growing economy
The research findings revealed that factors such as age of business, business plans availability, educational background of business owner, experience of business owner and availability of a collateral have an influence on the bank loan decisions
The study was conducted in Ekurhuleni Metropolitan area, province of Gauteng, South Africa

Summary

Introduction

A vibrant and growing small business sector is a significant characteristic of a flourishing and growing economy. The small business sector in South Africa plays an important role in economic growth, employment creation, income generation and reducing levels of inequality. Despite the importance of the small business sector’s role in the South African economy, the country is ranked well behind fellow African countries in its ability to establish, sustain and grow successful new businesses. The latest Global Entrepreneurship Monitor (GEM) report indicates that entrepreneurship in South Africa has declined during 2015 and 2016 (Harrington & Kew, 2016). The 2016 GEM report revealed that the entrepreneurial intentions in South Africa have dropped by almost 30% (from 15.4% to 10.9%) when compared to 2013 and almost halved when compared to 2010 (GEM, 2016). In South Africa, a disappointingly high number of Small, Medium-sized Entities (SMEs) fail during the first few years of operation (Nieman & Nieuwenhuizen, 2009)

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Conclusion