The psychological aspects of money management and borrowing can have a profound effect on the ability of entrepreneurs to obtain working capital for their businesses. In South Africa, the attitudes towards money, shaped by family dynamics and cultural traditions, have contributed to the high failure rate of Small, Medium, and Micro Enterprises (SMMEs).
Research conducted by Forbes underscores the deeply ingrained nature of our attitudes towards money, with each family having its unique set of norms regarding financial discussions and responsibilities. The stigma associated with money often presents a significant barrier for entrepreneurs seeking funding. The immense pressure and responsibility of starting a business can lead to feelings of being overwhelmed and uncertain about borrowing money.
Additionally, cultural and religious beliefs also play a pivotal role in shaping an entrepreneur’s mindset towards borrowing. This intricate relationship with money has led to many entrepreneurs being reluctant to seek business funding when it is most needed. According to Daniel Moritz, Chief Financial Officer of Merchant Capital, South African business owners are less forthcoming about obtaining capital for their businesses compared to their counterparts in other countries.
In South Africa, there is an unspoken fear of failure, as many entrepreneurs feel the weight of supporting their families and employees. This fear often drives entrepreneurs to seek funding from family members or resort to unscrupulous lenders such as loan sharks. The prevalence of loan sharks has created a vulnerable environment for entrepreneurs in desperate need of funding. However, the emergence of financial technology companies (fintechs) and alternative lenders has begun to change the perception that legitimate funding can only be obtained from traditional banks.
Merchant Capital, for example, has been at the forefront of revolutionising the working capital market by offering transparent and ethical funding solutions. It is imperative for alternative lenders to educate entrepreneurs who have previously fallen victim to loan sharks and those who are currently experiencing working capital shortages. Many entrepreneurs also hold misconceptions about applying for start-up funding and working capital, such as the belief that only traditional banks provide unsecured loans or that a flawless credit history is the most crucial factor for loan approval.
In reality, South Africa is home to a growing number of innovative unsecured loan providers, such as Merchant Capital, which offer customised solutions for small business growth. The company has even developed a compliant business finance product for the Islamic business community in collaboration with Muslim scholars, demonstrating their commitment to meeting diverse entrepreneurial needs. Since 2020, they have disbursed over R250 million in Shari’ah-compliant funding to nearly 1,000 Muslim-owned businesses.
As Moritz underscores, Merchant Capital was established by entrepreneurs, for entrepreneurs. They comprehend the challenges that business owners confront and have dedicated themselves to making it as straightforward as possible for entrepreneurs to access the funding they need to thrive.
In conclusion, the deeply ingrained psychology of money, combined with cultural and familial influences, can substantially influence entrepreneurs’ perspectives on borrowing and obtaining working capital. It is crucial for entrepreneurs to challenge their beliefs and prejudices and explore the diverse funding options available to them, such as innovative unsecured loan providers, to support the growth and success of their businesses.