3 reasons for small businesses to be optimistic

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Traditional financial institutions often regard small and medium enterprises as high risk, and so are not willing to take the plunge and avail funds to them. But small businesses can make the most of an equity finance mechanism recently developed by South African Revenue Service (SARS), which will soon be complemented by amendments to the tax legislation. Section 12J of the Income Tax Act in 2009 is aimed at assisting in the development of a venture capital industry in South Africa.

Ravi Govender, Head of Small Enterprises at Standard Bank, believes the following factors should make small businesses more optimistic about access to funding hitherto which they have been deprived of:

1)    The tax incentives will entice investors to avail more funding to small businesses, as venture capitalists are willing to take on more risk than traditional financial institutions.

2)    Venture capitalists look for active involvement in businesses, such as consulting and mentoring the entrepreneur, which will enable him or her to run the business more optimally. In addition, most venture capitalists have extensive industry knowledge, which small businesses can leverage off.

3)    The social capital that venture capitalists can provide through their connections is also invaluable for small businesses looking to grow their customer base and expand their business.

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