The impact of the independent review on SME access to bank finance: The case of South Africa

Abstract

It is accepted that SMEs are major contributors to global employment and GDP. Similarly, SMEs' reliance on bank finance to maintain financial and operational sustainability is also globally accepted. In 2008, the Company's Act of South Africa was amended to scrap the statutory audit requirement for qualifying entities, with the aim of alleviating the administrative burden of SMEs and increase their sustainability potential. As sound as this strategy may have been, a grey area arose in that banks may still insist on audited financial statements. This study investigates the question as to whether South African banks still consider audited financial statements as key in evaluating SME bank finance applications. This was done by analyzing the major banks' requirements per their policies and follow-up discussions with loan officers. Contrary to expectations, the historic focus per audited financial statements was considered of much less importance than progressive future-oriented management statements and reports.