CAPE TOWN – One of the biggest pain points for domestic small and medium-sized enterprises (SMEs) is trying to grow in a tough market is that the funding process just takes too long – generally, between two to three months, with some funders taking as long as nine months. 

This was according to Kumaran Padayachee, the chief executive of SME finance specialists, Spartan SME Finance, who said the consequences for an SME of funding that took too long to arrive were often devastating to the business. 

He said a significant number of SMEs would make do without funding, which meant that they would miss opportunities to pitch for contracts that would have helped them grow. Alternatively, they compromised themselves to get the funds, by using working capital or an overdraft to fund something expansionary in nature, and then had to deal with the consequences of that decision.

Padayachee said the cost of missed opportunities and lower growth for thousands of local SMEs had a major knock-on effect on the economy. 

It is estimated that SMEs make up 91 percent of formalised businesses, provide employment to about 60 percent of the labour force, and their total economic output accounts for an estimated 34 percent of South Africa’s gross domestic product.

Padayachee said it was difficult to put an exact number to the cost to the economy of slower SME growth, but added that the need to operate in a supportive financial environment was critical to the sector’s well-being.

“South Africa needs a faster process for SME funding,” said Padayachee. “Traditional finance processes aren’t SME-friendly– they’re often based on either a corporate or consumer finance application process, which don’t reflect the realities of the SME sector.” 

“The main reason that funding for SMEs takes so long is that the process is not designed with an empathetic view. One cannot be empathetic to an SME unless you are totally committed and have a complete focus on that sector. When you empathise, you design and set your processes in a way that are aligned to the way SMEs work, rather than the way corporates or consumers work.”

Padayachee said the answer lay in creating funding models that were fit for purpose and met the continuum of funding needs for SMEs. “This requires a huge commitment: your entire application process has to be built with a fit-for-purpose, time-sensitive approach in mind. You have to commit your people, change your culture and use technology innovatively. Only then will you be able to help move the SME sector forward constructively.”

Even though government committed R1.5 billion into a Small Business Fund last year, the reality is that this needs to be shared among more than 2 million SMEs. More is needed to make a real difference to the economy. As a corollary, the reliance on private lenders has increased significantly.

BUSINESS REPORT ONLINE