| dc.description.abstract | The small business and its development is one of the most critical success factors in the
South African economy. Developing the small business sector could result in job creation
and re-division of income and wealth in the country. However, within the small business
sector problems are being experienced such as insufficient own capital, a lack of knowledge
and management experience and limited access to financing. The lack of knowledge and
management experience is one of the most significant reasons why small businesses fail. As
a result of the importance of the small business sector as well as taking into account the
problems which the industry is experiencing, the decision was made to do research on one
of the greatest stumbling-blocks in the industry, namely access to financing.
The franchise industry which comprises a large part of the small business sector and which
bridges some of the problems in the small business sector, such as the lack of knowledge
and management experience, has been selected for this research. The franchise industry was
selected because it is a relatively young industry in South Africa, it is an industry in which
growth is possible, and because very little research has been done on the industry thus far.
The overall objective of this study is to identify possibilities which will facilitate financing
for the prospective franchisee and which will then lead to growth in the small business
sector. In order to attain the above mentioned objective, the following aspects were
investigated:
♦ The sources of financing available and which are generally used by the franchisee.
♦ The problems experienced by the franchise industry in terms of financing.
♦ The value of the franchise concept and whether it holds any advantages for the
prospective franchisee in terms of financing.
♦ The requirements presented by banks and other financial institutions to the financing
application, so that the prospective franchisee will be able to prepare a thorough
application.
The information was gathered by means of a literature study as well as an empirical
investigation. In the empirical part, personal interviews were used as a research method in
acquiring information from banks and other financial institutions which play a part in the
small business sector. Information from the franchisors was gathered by means of postal
questionnaires. Once the data was sorted statistically, the following most significant
deductions and recommendations could be made:
There are limited sources and methods of financing available to prospective franchisees.
Alternative sources must be investigated and the prospective franchisee should creatively
consider other possibilities for financing. Large companies and franchisors should become
more involved in the financing of smaller enterprises.
Insufficient security and a lack of own capital were identified as the greatest problems
experienced by prospective franchisees. Banks and other financial institutions set high
requirements in respect of security and are very wary of taking too much of a risk.
Although banks and other financial institutions understand the value of the franchise
concept, it is not always reflected in their evaluation of risk in all instances.
Aspects by means of which the value of the franchisor can be determined were highlighted
and using this as a yardstick, a financial provider will be able to better evaluate the risk of a
prospective franchisee.
It was found that a franchisor is only in an advisory capacity in the financing of franchisees.
It is recommended that they should become more involved and provide financing themselves
or provide guarantees.
A prospective franchisee should prepare his application for financing thoroughly which will
include a business plan and the support of the franchisor.
Lastly it was found that should prospective franchisees be able to solve their problems
regarding financing, it will lead to more growth in the industry. | en_US |
