The research was conducted by TerraNova, a strategic communications agency and based its findings on interviews with the business executives in charge of the SME finance division at Standard Bank, Absa, Nedbank, FNB and Investec, as well as specialist SME funders Business Partners, Bank of Athens and the Small Enterprise Finance Agency (SEFA).
The institutions surveyed agreed that they found financials prepared by CAs(SA) more trustworthy than those produced by the companies themselves, or by other independent accountants, when assessing creditworthiness. "The letters behind the name make a big difference to us," says Scott Brown of Investec. "Rather than some other accountant qualification, the CA(SA) counts a lot more as far as we are concerned," Oscar Siziba of Absa agrees. "Figures signed off by a CA(SA) have more credibility."
Whatever the reason behind a company's need for a loan, trustworthy financial statements are not negotiable. Without them, banks won't even consider the other factors affecting the decision to lend, such as future business projections or the track record of the applicant.
Specialist SME funders, in particular, prefer audited financials. While banks rated the importance of
audited financials, on average, as 7.4/10, the specialist funders unanimously assigned an importance of 10/10. "As it stands today, we call for audited financials," says Daryl Adriaanzen of the Bank of Athens. "The independence and the quality of that information, is by far the biggest component of the credit decision in terms of data that you look at. There is just that much more interrogation with the numbers."
As they are familiar with banks' lending criteria, SMPs can also advise small businesses on ways to improve their financial fitness - by providing proof of ongoing turnover, ensuring salaries are paid on the same date every month, keeping VAT and PAYE payments up to date, ensuring the person behind the business maintains a clean credit record, and by helping the SME create a forward looking cash flow that is based on good solid assumptions. The input of a CA(SA) can make a major difference on the bank scoring system, when credit is required.
The respondents also indicated that CA(SA) involvement in an advisory capacity can make SMEs more attractive as a credit risk. They help business owners understand the difference between cash-flow and turnover, for example, and their professional relationships with lenders make them invaluable when creating a business plan that will qualify for credit. "We pretty much look for a business that is well supported financially - and is being mentored and guided on sound business practice," says Siziba.
All of the funders surveyed agreed that one of the greatest challenges facing small businesses is governance. An SME often has an owner, chairman of the board, CEO and shareholder all rolled into one. Without the oversight, the checks and balances that are built into large corporations, an SME owner can lose perspective and succumb to poor decision-making. The business and finance
expertise of a CA(SA) can be invaluable as an outside eye - so lenders encouraged SMPs to make themselves available as non-executive directors. This would not be a formal appointment, but would utilise the SMP in exactly the same oversight role.
In addition, the respondents agreed that the professional networks built up by CAs(SA) could be a useful asset when planning expansion or acquisitions that require funding. Most of the lenders are also prepared to pay SMPs a commission on these referrals. "However, the business owner must know that the auditor has a vested interest in referring the business, and commissions must be declared," says Adriaanzen. "But the CA(SA) qualification here does make a difference to us. A CA(SA) wouldn't put his reputation at risk, whereas some business brokers are another kettle of fish."
A small business owner who is aware that the CA(SA) makes a commission on referrals to lenders is also in a position to negotiate a better rate for the auditor's services. All lenders, at the end of the day, are investors, and CAs(SA) have the knowledge and experience to match the risk profile of an SME to the appropriate institution. "If a CA(SA) were to present a risk assessment report," says Christo Botes of Business Partners, "It would help us understand the business risk as well as the mitigating options."
