South Africa’s SMEs are the backbone of our economy, yet recent reports paint a worrying picture: over 50% of small businesses are at risk of closing within the next year. As someone who has been involved in SME development and funding across the country, I can say with certainty — this is a crisis that calls for urgent, decisive action.

I’ve seen firsthand how SMEs drive employment, foster innovation, and contribute significantly to our GDP. But, despite billions poured into enterprise development every year, the failure rate remains worryingly high. Why? Because the support systems we have aren’t addressing the real barriers these entrepreneurs face.

The Funding Challenge

In South Africa, government allocations, private sector investments, and corporate enterprise development programmes collectively spend billions on SME support. Yet, only a small portion of these funds actually reach the entrepreneurs who need them most. Many small businesses simply aren’t ‘funding-ready,’ and existing financial models often exclude those from previously disadvantaged backgrounds, collateral is still a major hurdle, and financial literacy is limited.

Recent data shows SMEs contribute roughly 60% of employment and 34% to GDP, yet they are hamstrung by cash flow issues, limited market access, and the inability to scale. Despite the huge funding pools, many entrepreneurs struggle to access affordable finance.

What’s missing?

Funders: Whether government agencies, impact investors, banks, or corporates need to rethink and diversify their approaches:

Innovative Funding Models: Traditional bank loans are often out of reach due to collateral requirements and perceived risks. We need to embrace more micro-loans, revenue-based funding, and well-structured grants that don’t place heavy burdens on small businesses.

Trade Credit & Alternative Funding: Using trade credit where suppliers offer deferred payments can ease cash flow. Additionally, alternative sources like more access to invoice financing or peer-to-peer lending can open new doors.

Government Guarantees & Cost-Effective Funds: Government-backed guarantees can de-risk lending, encouraging banks and investors to provide affordable finance. We also need to develop cost-effective funding options, like impact-linked loans and blended finance solutions, tailored specifically for small entrepreneurs.

Capacity Building & Financial Literacy:  Many SMEs are simply not ‘funding-ready’ because they lack proper financial management and planning. Focused capacity-building programmes in financial literacy, forecasting, and investment readiness are vital to help entrepreneurs access and effectively use funding.

Market Access & Networks: Beyond funding, SMEs need access to larger markets, supply chains, and mentorship. Initiatives like Startup20’s (G20) focus on investment, trade and market access policies are crucial, especially in a slow-growing economy where local markets alone aren’t enough for sustained growth.

Supporting Policy Environment: Finally, we must advocate for policies that make doing business easier; streamlining licensing, reducing red tape, and offering incentives. The Startup Act can also serve as a game-changer if implemented properly.

The way forward

Supporting SMEs requires a holistic approach, combining flexible, accessible funding with capacity-building and market linkages. It’s not enough to spend billions; we need to ensure those investments translate into real growth and sustainability for our entrepreneurs.

The opportunity is in our hands. Let’s rethink, innovate, and build an ecosystem where SMEs can thrive, not just survive. Because when our SMEs succeed, so does South Africa.

Let’s turn the tide; one SME at a time.

* Cleola Kunene is Head of SME Development at the Johannesburg Stock Exchange (JSE).

** The views expressed do not necessarily reflect the views of IOL or Independent Media. 

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