Experts Warn SME Readiness Lags Behind Capital Availability In South Africa

Hiten Keshave | image supplied

Inflation has eased, energy supply has improved, and economic forecasts point to modest growth after several difficult years. However, according to Hiten Keshave, CEO and co-founder of Unconventional CA, improved conditions do not automatically translate into easier funding access for smaller businesses.

“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,” says Keshave.

South Africa’s SME funding gap is estimated to exceed R350bn. Keshave says the shortfall is not primarily due to a lack of capital, but rather a mismatch between funder requirements and business readiness.

Funding available, but more selective

South Africa holds the largest stock of foreign direct investment in Africa, estimated at more than $120bn, with new commitments across renewable energy, infrastructure, mining services, fintech and business services. Investment pipelines for 2026 suggest growing willingness to deploy capital, including into SMEs.

However, access to funding is becoming more selective. Funders are placing greater emphasis on financial controls, compliance, governance and predictable performance.

According to Finfind’s South African MSME Access to Finance Report, more than 315 active funders offer over 600 funding products across debt, equity, grants and blended instruments. Despite this, approvals are concentrated among businesses able to demonstrate formal financial management, clear cash flow forecasting and structured operations.

Smaller firms are most affected

SMEs remain central to South Africa’s growth outlook, accounting for the majority of registered businesses and a significant share of employment. Yet the funding gap is most visible among smaller enterprises.

Formal micro businesses, with annual turnover below R1m, 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 a lender's perspective, common risk factors include high owner dependency, weak financial controls, informal governance and inconsistent compliance. In many cases, business and personal finances are intertwined, making risk assessment difficult.

“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,” says Keshave.

Cost pressures and rising standards

While load shedding has eased, electricity tariffs are expected to rise by more than 5% in the 2026 to 2027 financial year. Logistics inefficiencies continue to increase transport and inventory costs, and working capital remains constrained for businesses with weak balance sheets or limited credit histories.

Funding decisions are increasingly driven by measurable indicators such as cash flow visibility, tax compliance, forecasting accuracy and debt servicing capacity. Equity investors also assess governance standards, risk management and basic environmental and social compliance.

Growing divide in the sector

A divide is emerging within the SME sector. Businesses with formal financial systems, diversified revenue streams and at least six months of operating runway are more likely to attract funding in 2026. Those without these fundamentals risk exclusion, even as overall investment volumes increase.

As investor interest returns, the opportunity for SME growth is real. Whether this translates into sustained expansion and employment will depend less on the volume of capital available and more on how many businesses are equipped to meet funding standards.

Capital is returning, but the ability of SMEs to absorb it remains uneven.