New-look SBDC gives small player a chance
SINCE ditching its perceived role as a bank of last resort for small businesses and reinventing itself as an equity finance company, the Small Business Development Corporation has disbursed R243-million in the 1996/97 financial year.
The state has taken over the role of funding micro-enterprises and catering for the broad needs of the informal sector through its newly created structures, Ntsika Enterprise Promotion Agency and Khula Enterprise Finance.
The SBDC now provides investment capital of between R50 000 and R3-million in the form of equity as well as term loans. SBDC chief executive Jo Schwenke says the small businesses must be viable, privately owned and run by people with the entrepreneurial skills.
Of the R243-million disbursed during the 1997 financial year, 14% was equity funding, a figure it intends to grow to 85% by 2002. The SBDC transacts 80 to 90 deals a month, most of which incorporate both equity and term-loan components. Within the next four to five years, the SBDC expects to grow its equity financing book to about R500-million.
"We have moved more towards being a venture capital company," says Schwenke. "Most of the companies in which we are involved are relatively high risk, but that is what venture capital is about. We target our equity financing programmes at both high-tech and low-tech companies."
The 1997 annual report values SBDC's business loan book at R736-million. Revenue earned for the year was R230.6-million, three quarters of which came from its interest in business investments, R55.9-million from rental and R42.3-million from interest on cash.
In time, the SBDC plans to transform its loan book into equity investments. In this sense, the SBDC is not unlike JSE-listed NSA Investments, the primary difference being that NSA acquires investment stakes in much larger companies. The SBDC expects to run out of cash in 1999, at which point several possibilities will be considered, including a possible listing on the JSE. The SBDC has relinquished its role as a funder of micro-loans to the state. Schwenke says this activity requires careful administration and systems, and generally offers poor rates of return.
The state reduced its shareholding in SBDC from 50% to 20% as part of a broad reorganisation of its involvement in the small business sector.
The majority of successful entrepreneurs are drawn from the corporate middle management level, says Schwenke. Many see little scope for further advancement in the corporate world and opt out to launch their own businesses. Sadly, less than 5% of micro-entrepreneurs evolve into something bigger, suggesting the informal sector remains little more than a safety net for the "unemployed".
A variety of new organisations have sprung up with the purpose of providing a progression ladder for small and micro-enterprises, including the Corporate SMME (small, medium and micro-enterprises) Development Forum, which aims to promote affirmative procurement in the private and parastatal sectors. The forum is compiling a database of emerging entrepreneurs and plans to raise manufacturing and skills levels through various skills transfer programmes.
Schwenke says one of the purposes of the SBDC is to raise the level of black business through a variety of interventions, from equity and loan financing through to management support. Top of page