Each year since 1999, a consortium of universities has conducted an international study of the level of entrepreneurship in countries around the world. This is known as the Global Entrepreneurship Monitor, or GEM.

The most recent GEM findings for South Africa are depressing. Whereas countries in the rest of sub-Saharan Africa are enjoying a boom, entrepreneurship in South Africa appears to be dropping to an all-time low.

Here we look at the statistics and then consider the role that asset-based lending may play in helping South African entrepreneurs overcome the challenges.

GEM findings for South Africa

The main indicator used by GEM is called total early-stage entrepreneurial activity (TEA). This is the percentage of the working age population, from age 18 to 64, that’s either about to start an entrepreneurial activity or has started a business within the last three and a half years.

Throughout sub-Saharan Africa, TEA rates are high, averaging 28% across the region. However, South Africa is an exception, with a TEA of only 7%. Compare this to 41% for Zambia, 37% for Ghana and 35% for Nigeria.

Similarly, people’s attitudes about entrepreneurship appear to be very positive just about everywhere in sub-Saharan Africa, except in South Africa. Only 35% of interviewed South Africans were positive about the opportunities available for entrepreneurs. The average percentage for the region was double this figure.

As a further statistic, GEM reports on the number of surveyed individuals who intend to pursue an entrepreneurial opportunity within the next three years. These people are referred to as “intentional entrepreneurs”. The average across sub-Saharan Africa was 53% – compared to a meagre 12% for South Africa.

So what’s going wrong?

Among the challenges contributing to the negative trends for entrepreneurs in South Africa are high costs and the difficulty for entrepreneurs of accessing funding.

It’s common for small to medium-sized enterprises (SMEs) to run into short-term cash flow problems. These can occur for any number of reasons. For example, businesses may experience short-term liquidity issues due to:

• seasonal downturns in revenue
• overtrading
• slow-paying accounts
• investment in inventory or expensive equipment
• a need to support rapid growth
• use of cash to exploit opportunities.

Without easy access to funding, any one of these issues can be enough to cause a business to falter.

Potential role of asset-based lending

Asset-based lending may give entrepreneurs and established business owners fast, easy access to cash, at times when this is critical for survival.

Asset-based lending is an especially useful alternative for startup and small businesses, which often don’t qualify for traditional bank loans. It can also provide a stop gap if a bank may take too long to approve and finalise a loan. The business world moves fast, and sometimes a delay in funding may mean losing out on a valuable opportunity.

If you have valuable assets and your business needs a rapid injection of cash, contact a representative at Lamna for more information and we’ll be happy to explain our asset-based lending approach.