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Home » Industry News » Business Advisory & Financial Services » SA’s Small Business Funding Landscape: A Guide for SMEs 

SA’s Small Business Funding Landscape: A Guide for SMEs 

Securing funding and loans can be a challenging, frustrating experience for small business owners in SA, especially for SMEs who may not have experience with the rigorous applications processes.

“With demands like a solid business plan; extensive credit history checks; and scrutiny of your business bank account’s statements, trying to access small business funding can feel like you’re on trial,” says Tom Stuart, chief marketing officer at Lula, one of SA’s most successful business funding providers and digital banking partner for businesses.

New research from funding specialists Finfind suggests that, over the past few years, more than a third of SMEs’ business credit applications have been rejected, with another third receiving no response, meaning that fewer than one in three applications were successful.

Weak, or unclear credit histories are the main reasons given by banks and lenders for the rejections.

“Access to funding is a crucial element to fuel a business’ growth. Small business funding It affects all aspects of a business’ operations: equipment and supply purchasing; recruitment and staffing; as well day-to-day cash flow management. Though there are challenges, obtaining funding is feasible, for both new and established businesses,” says Stuart.

“And it’s not only banks who offer small business funding: There are also government programmes, alternative B2B lenders like Lula who specialise in funding and banking for small business owners in South Africa, and other financial services.”

“A clean credit history and a track record of generating consistent revenue, which is greater than your expenditure, will stand you in good stead when looking to secure business funding,” he advises.

“Small businesses that embrace digital technology will discover tools to simplify financial monitoring and reporting, which can offer shortcuts along the arduous path of obtaining small business funding, and help stack the odds in your favour,” Stuart suggests.

“But it’s not only about you. Lenders will also analyse the state of the industry you’re in and try to gauge your relative market position. They’ll also consider the reasons you’ve given for taking a loan, so business owners must have a clear idea about what the funding will be used for – whether it’s for equipment, supplies, salaries, R&D, a new product launch, or anything else.”

“Small business bank loans remain prevalent in SA.  Securing a business loan from a bank often requires extensive paperwork and the ability to provide collateral. With the latter often ruling this option out for many SMEs. And sadly, they rarely provide products and services specific to the needs of South Africa small businesses,” Stuart cautions.

Startups who may not yet be in a position to demonstrate transactions or even have a credit history will find the small business funding application process challenging, so finding ways to demonstrate a business’s future viability can come in handy with some lenders.

Stuart notes that “startup finance providers – whether they’re VCs, banks, microlenders, or business credit partners – tend to favour entrepreneurs and any business partners with a good personal credit bureau rating, and a history of success in their chosen industries.”

“Revolving capital facilities, like Lula’s, are also a great option for smaller businesses to consider, as they allow you to withdraw and repay as needed, avoiding any unnecessary interest costs that result from borrowing more money than you actually need at a given time.”

Revolving capital offers businesses instant working capital. This lets you manage short-term cash flow gaps and seize business opportunities as you spot them,” he states. “For businesses with highly seasonal or variable cash flow needs, revolving capital facilities may prove ideal.”

In today’s dynamic, challenging business environment, small business owners need fast and easy access to business capital. It’s become more crucial than ever to empower small businesses with flexibility and efficiency.

Banks still play a critical role, but it’s the smaller, alternative business lender who are leading the charge for user-friendly small business funding and streamlined application processes.

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