South Africa's R350 billion SME funding gap: A call for business readiness

Despite an improvement in investor confidence in South Africa, a Small and Medium Enterprises (SME) Empowerment organisation has highlighted concern about a R350 billion SME funding gap that persists because many businesses are not funding ready.

CEO of SME Empowerment organisation, Unconventional CA, Hiten Keshave, said the funding gap is most visible among smaller, micro businesses and informal traders. “Formal micro enterprises account for more than 86% of SME funding applications and contribute over 80% of SME job creation, yet they are the least likely to secure funding approval.”

Keshave added that there are growing signs that business and investor confidence is beginning to stabilise in South Africa. “Inflation has eased, energy supply has improved, and economic forecasts point to modest growth following several difficult years marked by weak demand, high costs and persistent uncertainty. Many people think that once conditions improve, funding becomes easier to access. But the reality is that there’s still a big gap between the funding that exists and whether businesses are ready to qualify for it.”

Keshave said the estimated SME funding gap exceeding R350 billion is not driven by a lack of capital, but by a mismatch between funding requirements and business readiness. “This disconnect is becoming more pronounced as capital returns. South Africa continues to hold the largest stock of foreign direct investment in Africa, estimated at more than $120 billion (R1,9 Trillion), with new commitments across renewable energy, infrastructure, mining services, fintech and business services. Investment pipelines for 2026 indicate a growing willingness to deploy capital, including into the SME sector.”

Keshave added that access to funding is becoming more selective rather than more accessible. “Funders are raising their expectations, placing greater emphasis on financial controls, compliance discipline, governance and predictability. According to Finfind’s South African MSME Access to Finance Report, there are more than 315 active funders offering over 600 funding products across debt, equity, grants and blended instruments. Yet approval remains concentrated among a relatively small group of businesses that are able to demonstrate formal financial management, clear cash-flow forecasting and operational structure.”

Keshave said for policymakers, investors and lenders, SMEs remain central to the growth outlook. “The sector accounts for the majority of registered businesses and is responsible for a significant share of employment. On paper, 2026 should be a stronger year for SME investment than those that preceded it.”

Keshave added that in practice, the funding gap is most visible among smaller enterprises.”Formal micro businesses, defined as those with annual turnover below R1 million, account for more than 86% of funding applications and contribute over 80% of SME job creation. They are also the least likely to secure funding approval. From an investor or lender perspective, the reasons remain consistent. Many SMEs remain owner-dependent, with decision making concentrated in a single individual. Financial controls are often weak, governance structures informal and compliance inconsistent. Business and personal finances are frequently intertwined, complicating risk assessment.”

These aren’t technical issues. If a business can’t show steady cash flow, clear decision making and the ability to operate without the owner, funders see it as a risk.

“These aren’t technical issues. If a business can’t show steady cash flow, clear decision making and the ability to operate without the owner, funders see it as a risk,” Keshave said.

Professor Waldo Krugell, an economist at North-West University, said that it is true that SMEs struggle to obtain access to funding. “Particularly, microenterprises are often financed through informal channels, such as the founder's own savings, a personal loan, or loans from family members. It is difficult to make the jump to formal channels because they require things like cash-flow visibility, tax compliance, forecasting accuracy and debt servicing capacity.”

Krugell added that some see this as an argument for the public purse to step in, but a government agency or state bank will face similar problems to the private sector in figuring out who is more creditworthy.

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