The success rate of business plans at selected financial institutions
Maphosa, Matthew Sello Seaketso
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The purpose of this research was to determine the success rate of business plan proposals submitted at selected financial institutions. In the context of this study, selected financial institutions refer to the four main retail banks of South Africa, namely ABSA, First National Bank, Standard Bank and Nedbank. Face-to-face in-depth interviews were conducted with eleven small business owners from each bank, bringing the total of small business owners interviewed to 44. The interviews were guided by a set of closed-ended and open-ended questions eliciting information from small business owners as to how they draft or develop their business plans. Open-ended questions allowed the respondents to express their opinions and assisted the researcher to seek clarification on the reasons or motivations behind the responses. The research found that the business plans submitted to financial institutions were ineffective as they fell short of elements that should be included in a business plan. This finding was based solely on the small businesses sampled. The results indicate that small business owners need to put in more effort to prepare sound business plans. Small business owners need to take greater care and effort to provide financial institutions with what is essentially required when applying for finance. Good record of accomplishment, good credit record, business expertise or skills, and the availability of collateral and risk capital, are all considered by small business owners to be essential in order to obtain finance. Conversely, lack of risk capital, lack of collateral and poor cash flow, are considered to be barriers to obtaining finance. Small business owners need financial institutions to assist them with their skills development. These include mentorship and training services, a tool to create business plans, an enterprise toolkit, and a model for cash flow. Government incentive schemes are unpopular with small businesses, and as a result, small business owners miss other sources of finance. Financial institutions could do more to improve the situation and to increase the accessibility of finance to the SMME sector. Financial institutions continue to place greater reliance on sound or viable business plans. This is understandable owing to the need to assess repayment ability. Small business owners need to be aware of what information financial institutions require when they assess finance applications. Overall, they should be more prepared when applying for finance.