# General Business Category > Business Finance Forum >  SME Failure Statistics

## Gary Simmonds

GroFin Founder and MD Mr Jurie Willemse recently researched the failure rate of SMEâs and shares his thoughts on the matter :

âOut of the 14 sources investigated, the number of SME failures  by year 5 vary between 50% and 95%. Using the standard statistical method of not taking into account the two outliers then the average failure rate quoted by the 12 sources come to an average of 71% of all SMEs being out of business by year 5, which reiterates the high failure rate of SMEs.â

âOut of 14 sources we investigated, eight ascribed the key reason for failure to quality of management  and six ascribed it to a lack of access to finance. In all cases the 14 either ascribed it to either reasons of not accessing enough or correct financing or quality of management decisions.â

âThis supports GroFinâs value proposition of not only making financing available but also adding value before and during the finance period.â

âIn none of the cases did the SMEs plan to failâ¦.but in most cases they failed to plan and this leads to a high failure rate. Planning - making sure of viability of entrepreneur and business and identifying risks, risk mitigation plans and correct financing need - is critical if you are to increase the success rate of an SME.  It is here where GroFinâs value add really lies.â

âWe increase the SMEâs ability to succeed by addressing the two key causes of failure, being access to finance and access to management support â the value of not being part of the 71% statistic if you do business with GroFin.â

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## flaker

Hi,

Above sounds good. Please educate me: 1) what sort of equity does GroFin take on businesses it helps (funding & management ). 
                                                        2)what rate of interest would GroFin charge for this funding.

Yes, i know it will vary business to business & amount of management & risk involved but i'm sure that there is some average that is the "cost" to businesses you've funded-managed.

Above is being asked with the real possibility of asking for  funding of purchase of business & also for benefit of forum members contemplating same, so please accept in the spirit it is intended.

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## Gary Simmonds

Hi

Although the taking of equity in a business is part of the GroFin model it is more the exception rather than the norm. Most of the businesses we assist involves a term loan of between 3 to 5 years on a self liquidating basis so as to ensure a clean exit at the end of the period. In cases where there is a sound business plan and exceptional entrepreneur equity is an option.

GroFin has recently amended its cost structure and previously charged incentives or royalties as a percentage of turnover have now been done away with. The GroFin base rate in South Africa is currently 15% and to this a risk premium is added once the required risk analysis has been done and this could add a further 0% to 5% to this interest rate. There are certain administrative and business development assistance fees that are charged during the investigation and due diligence process and a portion of these can be capitalised.

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## flaker

So it appears that the funding interest rate would average about 17.5% pa.
There also is an initial charge (admin etc). as you point out which would  be,i guess, approx 2-5% of amount to be funded?you could put down a more accurate %,which will help. And is there a continuing management fee for the "Grofin's value add" during the period of funding apart from the interest?
many thanks

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## jasicajhon

> So it appears that the funding interest rate would average about 17.5% pa.
> There also is an initial charge (admin etc). as you point out which would be,i guess, approx 2-5% of amount to be funded?you could put down a more accurate %,which will help. And is there a continuing management fee for the "Grofin's value add" during the period of funding apart from the interest?
> many thanks


agree with you ...!
any way I can get discount on the interest rate...?

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## Blurock

Gary, I'm glad to see you're back. 

I do not quite agree on the stats for failing SME's as many of these are sold on or merge with other businesses or morph into something else. So, if we look at deregistered companies or CC's, the stats are definitely wrong. If we consider stats provided by funders, the stats may also be wrong as it would only apply to those who were funded by the banks, and not to those who used bootstrapping or other means outside of the formal funding pool. In both cases stats can be distorted.

I agree that providing less than the required funding is very dangerous. Its like providing a guy with half a tank of petrol to drive from JHB to Cape Town. Poor planning and bad financial management must be the biggest contributors to failure. In the end it boils down to CASH FLOW. Cash flow is the fuel of any business and without it you will not survive.

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