Factors Influencing the Financing of Business Start-ups by Commercial Banks in South Africa

Abstract

The failure rate of new business start-ups is very high in South Africa. Inaccessibility to debt finance from commercial banks is one of the causes of failure. The study examined the factors that influence the financing of business start-ups (specifically new small and medium enterprises) by commercial banks in South Africa. The websites of the four big banks were critically reviewed for the lending requirements. Interviews were conducted with four bank officials responsible for credit about the important factors that banks take into consideration when evaluating the credit applications of new small and medium enterprises. The findings indicated that the availability of business plan, collateral, maintenance of a good relationship, managerial competency and a good credit score are critical lending requirements. The study recommends that there is the need for small business owners to be proactive and be aware of the lending requirements. In addition, commercial banks need to better communicate the lending requirements to small business owners. Government agencies that assist small businesses can also help to create awareness of the lending requirements.

DOI: 10.5901/mjss.2014.v5n20p94