Funding SMEs in the Natal Midlands region.

Thesis (MBA)-University of KwaZulu-Natal, Pietermaritzburg, 2004.Small businesses constitute the bulk of enterprises in all economies in the world. Storey (2000:7) states that 95% of all firms in the European Community can be classified as small and that they provide more than half the jobs in this community. Such firms make a major contribution to employment and wealth creation, which appears to be increasing over time. It is thus not surprising to find that numerous studies have been conducted globally regarding entrepreneurship, and the value that small businesses add to the economies of countries. South Africa is no exception and most universities have added entrepreneurship programmes to their curricula. The study of small business however proved not be such a simple procedure mainly due to the following reasons: Firstly, there is no single definition of a small firm, secondly there are numerous small firms and it is difficult to estimate how many exist at any point in time as many don't register their existence. This leads to problems for researchers when estimating the size and contribution of the small business sector in any one country not even to mention the difficulties in trying to conduct comparative studies between countries or regions. Despite these problems it is believed that some good has come from the research and it can be argued that research with limitations are better than no research. The lack of loan funding has been given as one of the major constraints faced by small business owners who either wanted to start-up a business or who wanted to expand an existing business. It was the objective of this dissertation to investigate various issues regarding small business funding. The relationship between entrepreneurs and funding institutions was investigated, the utilization and source of funds, as well as other factors that influence the funding process if any, were also examined. In order to achieve the objectives of this study a group of entrepreneurs in die Kwazulu-Natal Midlands were interviewed with the help of a questionnaire. The study focussed on businesses in the Howick and Pietermaritzburg area. Questionnaires were initially posted to firms but the overall response rate was low and this necessitated the use of personal interviews. Once the quantitative data was collected it was captured using SPSS and analysed using Chi-Square tests, correlation and regression analysis. The findings of the study mostly correspond and confirm the findings of previous research done on the topic of financing small business and the various constraints affecting its performance. Most of the respondents did find the lack of finance as a major constraint during the start up phase of the business and used their own or family money to start their own businesses. The study also focussed on the relationship between the entrepreneur and his financier and it was found that most of the respondents had a good relationship with their financiers. The threat of competitors was listed as the major nonfinancial constraint affecting businesses surveyed in the sample. The supply of a loan to a firm was found to be related to the ability of the firm demonstrating the ability to generate high sales, rather than to the ability to produce a business plan