The effect of human and social capital on the knowledge of financing alternatives by new small business owners in South Africa

Abstract

The failure rate of new SMEs is very high in South Africa. Financing constraints is one of the major causes of failure. The knowledge of the alternative sources of finance can help to reduce the financing constraints faced by new SMEs. The study investigated the effect of human and social capital on the understanding of financing alternatives. Self-administered questionnaire was used in a survey to collect data from data were from 136 owners of new SMEs in the Limpopo province of South Africa. The Cronbach’s alpha was used as a measure of internal consistency. Descriptive statistics and independent samples T-test used for data analysis. The results indicated that new SME owners with higher levels of generic and specific human capital have a better knowledge of financing alternatives. There are significant differences in the level of education and business courses and the knowledge of factoring, venture capital, Alt-X, bootstrapping, Islamic baking and crowdfunding. New SME owners with social capital as measured by direct and indirect ties have a better knowledge of financing alternatives.