Unlocking access to finance crucial for SMEs

In South Africa’s dire economic scenery, small and medium-sized enterprises (SMEs) stand as vital engines of growth and employment. However, their journey towards success is often hindered by the formidable challenge of accessing adequate funding.

Nobesuthu Ndlovu, the director of SMEs at Old Mutual, has shed light on the complex yet critical role funding plays in the financial freedom and overall success of SMEs in the country.

Ndlovu underscored the growing recognition of SMEs’ significance in driving economic prosperity, accompanied by an increasing array of funding channels and platforms.

However, despite these advancements, she noted that accessing funding remained a formidable obstacle for many SMEs, particularly those in underserved communities, start-ups or high-risk sectors.

Common hurdles such as limited collateral or credit history, high interest rates, stringent lending criteria and a lack of awareness about available funding options pose significant challenges for SMEs, hindering their growth potential and economic impact.

Ndlovu emphasised the importance of understanding the mandates and requirements of lenders and investors, highlighting factors such as business stage, model, trading history, financial performance and growth prospects as crucial considerations in securing funding.

According to Ndlovu, financial literacy and education are some of the significant tools required for SMEs to navigate the funding landscape effectively. By understanding their funding options, managing finances prudently, and making informed decisions, Ndlovu said SMEs can optimise their chances of accessing funding and navigating financial challenges successfully.

“Being financially literate as an SME means being able to understand their own affordability based on different funding options available. Different funding products have different implications for an SME and sometimes different requirements.

“An example is secured versus unsecured financing, where one, by virtue of there being collateral can have different interest rates and implications at default instances. Financial literacy also means knowing how to manage the funding when received and being able to honour any terms like payment to not affect their own credit scores.

“Lastly financial education means having the ability to assess your business’s historical trade, and forecast and budget for the future to understand what your business needs to grow and subsequently obtaining the right kind of funding. By enhancing their financial literacy skills, SMEs can improve their chances of accessing funding, optimising their resources, and navigating financial challenges more successfully.”

Innovative solutions like SMEgo by Old Mutual offer a digital platform that streamlines the funding process, matching SMEs with the right funders based on their needs, thereby enhancing the probability of success.

However, certain sectors, notably informal businesses and micro-enterprises, face funding challenges due to their size, lack of trading history, collateral and limited access to finance.

Ndlovu said addressing these challenges necessitated tailored solutions and targeted interventions to aid financial inclusion.

“The innovative aspect really comes in the platform matching SMEs with the right funder based on the SMEs funding needs to ensure a higher probability of success.”

Ndlovu’s advice to aspiring entrepreneurs and existing SME owners underscores the importance of building a strong business foundation, efficiently managing operations, and monitoring financial health.

She emphasised the importance of establishing a solid foundation for business success. This involves comprehending business and financial requirements, optimising operational efficiency, and consistently assessing financial performance. Additionally, she stresses the significance of resilience, adaptability and seeking assistance when necessary.

Looking ahead, the future of SME funding in South Africa hinges on collaborative efforts to address systemic challenges, foster innovation and create a supportive environment for SME growth.

“This includes initiatives to streamline access to finance, improve financial literacy, strengthen regulatory frameworks and leverage technology to expand financing options

“Prioritise building a strong foundation for their business by understanding their business and funding needs, finding efficient ways to run their business and to continuously monitor and measure the financial health of their business. It’s also important to remain resilient, adaptable, and open to seeking support and guidance when needed,” Ndlovu advised.

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