From gap to growth: tangible shifts in SMME funding
We know that SMMEs are engine drivers in SA's economy and job creation. The World Bank forecasts that four out of five new jobs over the next 15 years will be created by SMMEs, while the National Development Plan projects they'll contribute up to 80% of SA's GDP by 2030. A staggering proportion considering that this segment of the economy is largely underserved.
Positively, there are more funding solutions available now than there ever have been before. And as more funding options become available it is vital that education around securing relevant funding from reputable financiers is prioritised.
Websites such as Finfind assist in securing the right kind of help from credible providers, and organisations such as SME SA and the Gauteng Enterprise Propeller provide mentorship, training, access and business assistance to small business owners.
The National Financial Literacy Association plays a key role in addressing the challenge of financial literacy and inadequate record-keeping through impactful, data-driven initiatives. More businesses are also investing in the SMME sector to drive change among entrepreneurs. This was emphasised in the support of young business owners over Youth Month, contributing to the 30% of SMME owners under the age of 35.
Future-focused finance solutions
There are many alternative solutions available to SMMEs, but knowing what to choose and why is where many business owners fall short. Digitised options that are focused on the opportunity rather than credit history are where alternative providers are delivering impact-driven financing in a way that meets the needs of SMMEs.
Traditional lenders, like commercial banks, have expanded SMME product offerings and many are running tailor-made programmes targeted at business owners across crucial sectors such as agriculture and retail. Fintechs like Sourcefin offer fast, tech-enabled solutions that can deliver fast capital that supports the entrepreneur along their business journey, and blended finance models are becoming more common.
When it comes to alternative solutions, revenue-based funding is gaining popularity, enabling SMMEs to grow and build with the backing of invested capital for a percentage of earnings. Similarly, merchant cash advances offer lending through point of sale, unlocking funds that are paid back to the lender at each transaction.
For those requiring a large amount of capital to fulfil tenders or contracts, purchase order funding is a valuable solution that pays suppliers upfront, releasing SMMEs from the financial constraints that may be experienced due to insufficient cash flow or inventory. This solution should be structured to ensure that the lender is only repaid once the order has been paid by the borrower's customer, so that any profits can be reinvested back into growing the business.
In addition, invoice discounting provides a forward-focused solution that unlocks funding (usually determined as a percentage of the invoice value), which is paid directly to the SMME who may be required to wait 30, 60, or even 90 days for payment from their client. Generally, interest is charged on the capital outlay, but structures vary depending on the needs of the business and the lender.
Reformed regulations to public-private partnerships
Regulatory bottlenecks and procurement barriers continue to stifle small businesses, but there is hope. In the recent budget speech, the finance minister Enoch Godongwana outlined a fiscal strategy focused on unlocking infrastructure investment and stimulating economic growth.
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