The narrative around SMMEs in SA is shifting. For years, we’ve watched small, micro and medium enterprises play a pivotal role in our economy while seeing the funding gap widen with little opportunity for change. But as the landscape evolves, so do the solutions that better support this significant and vital sector.
In 2018, the funding gap was estimated to be between R80bn and R340bn, and less than 1% of SMMEs were said to have access to funding. Nowadays, this figure remains in the R350bn mark, with a marginally improved lending rate estimated somewhere around 5%.
However, a combination of updated policy and regulations, an openness from government in finding solutions within private partnerships, innovations in fintech, updates to traditional banking models, the rise of blended funding approaches, and new entrants to the alternative funding market are providing tangible ways to better enable SMMEs to build and grow sustainable businesses.
Beyond funding
With traditional financing frequently out of reach, SMMEs are often left unsure of where to turn to access capital. According to a recent Finfind Access to Finance report, more than 50% of small business owners are likely to approach family or friends, or resort to loan sharks, to get a business up and running. But this is neither a healthy nor sustainable solution.
In 2018, the funding gap was estimated to be between R80bn and R340bn, and less than 1% of SMMEs were said to have access to funding
We know that SMMEs are engine drivers in SA’s economy and job creation. The World Bank forecasts that four out of five new jobs over the next 15 years will be created by SMMEs, while the National Development Plan projects they’ll contribute up to 80% of SA's GDP by 2030. A staggering proportion considering that this segment of the economy is largely underserved.
Positively, there are more funding solutions available now than there ever have been before. And as more funding options become available it is vital that education around securing relevant funding from reputable financiers is prioritised.
Websites such as Finfind assist in securing the right kind of help from credible providers, and organisations such as SME SA and the Gauteng Enterprise Propeller provide mentorship, training, access and business assistance to small business owners.
The National Financial Literacy Advocacy plays a key role in addressing the challenge of financial literacy and inadequate record-keeping through impactful, data-driven initiatives. More businesses are also investing in the SMME sector to drive change among entrepreneurs. This was emphasised in the support of young business owners over Youth Month, contributing to the 30% of SMME owners under the age of 35.
Future-focused finance solutions
There are many alternative solutions available to SMMEs, but knowing what to choose and why is where many business owners fall short. Digitised options that are focused on the opportunity rather than credit history are where alternative providers are delivering impact-driven financing in a way that meets the needs of SMMEs.
Traditional lenders, like commercial banks, have expanded SMME product offerings and many are running tailor-made programmes targeted at business owners across crucial sectors such as agriculture and retail. Fintechs like Sourcefin offer fast, tech-enabled solutions that can deliver fast capital that supports the entrepreneur along their business journey, and blended finance models are becoming more common.
When it comes to alternative solutions, revenue-based funding is gaining popularity, enabling SMMEs to grow and build with the backing of invested capital for a percentage of earnings. Similarly, merchant cash advances offer lending through point of sale, unlocking funds that are paid back to the lender at each transaction.
For those requiring a large amount of capital to fulfil tenders or contracts, purchase order funding is a valuable solution that pays suppliers upfront, releasing SMMEs from the financial constraints that may be experienced due to insufficient cash flow or inventory. This solution should be structured to ensure that the lender is only repaid once the order has been paid by the borrower’s customer, so that any profits can be reinvested back into growing the business.
In addition, invoice discounting provides a forward-focused solution that unlocks funding (usually determined as a percentage of the invoice value), which is paid directly to the SMME who may be required to wait 30, 60, or even 90 days for payment from their client. Generally, interest is charged on the capital outlay, but structures vary depending on the needs of the business and the lender.
Reformed regulations to public-private partnerships
Regulatory bottlenecks and procurement barriers continue to stifle small businesses, but there is hope. In the recent budget speech, the finance minister Enoch Godongwana outlined a fiscal strategy focused on unlocking infrastructure investment and stimulating economic growth.
As funding models evolve, red tape eases, and partnerships deepen, a quiet optimism is emerging
The recent amendments to SA’s public-private partnership (PPP) regulations mark a significant step towards breaking down long-standing barriers that have constrained SMME participation in public sector projects. The reforms, which were set to be implemented on June 1, aim to streamline project approval processes and unlock faster infrastructure delivery, particularly for smaller-scale initiatives.
Institutions will now be empowered to internally manage PPPs valued under R2bn, significantly reducing the bureaucratic burden that previously delayed implementation and enabling public institutions to fast-track smaller projects without compromising on governance or accountability.
Another breakthrough lies in the formalisation of unsolicited proposals, allowing private businesses to pitch innovative infrastructure ideas directly to government outside traditional tender channels. This opens the door for more agile, collaborative partnerships, urging SMMEs and funders to step up with bold, forward-thinking proposals that can contribute to infrastructure development.
Meaningful change
Despite economic and infrastructure hurdles, a significant shift is taking place. Both government and private sector actors are moving from intent to action, introducing practical, forward-thinking solutions that better support SMMEs. As funding models evolve, red tape eases, and partnerships deepen, a quiet optimism is emerging. Those who are intentional and committed to sustainable, transformative business growth have the opportunity to shape a more inclusive, resilient, and future-fit economy for SA and its people.
• About the author: Joshua Kadish is CEO and co-founder of Sourcefin.
This article was sponsored by Sourcefin.
