Here’s how SA can ease SMEs access to funds

In an effort to address the challenges faced by small, medium, and micro-sized businesses (SMMEs) in South Africa when it comes to accessing finance, the 'SA SMME Access to Finance Report' was launched today in Johannesburg. The report sheds light on the obstacles hindering SMEs from securing funding and offers potential solutions to bridge the credit gap. Darlene Menzies, CEO of Finfind, and Paul Smith, Co-founder of Igniter and Independent Researcher, shared insights from the research in a recent interview on CNBC Africa. The report, based on data from 11,033 SMEs that applied for funding through the Finfind platform in 2017, revealed a substantial credit gap ranging from 86 to 346 billion rand. Despite SMEs requesting 40.9 billion rand during that period, many encountered difficulties in accessing financing due to traditional lending models that often require collateral and personal surety. According to Menzies, one of the primary challenges faced by SMEs is the lack of collateral and personal surety, as traditional credit scoring methods do not adequately assess the creditworthiness of modern businesses. Furthermore, the time-consuming process of preparing comprehensive documentation for banks adds another layer of complexity for SMEs in urgent need of funding. Menzies emphasized the importance of SMEs understanding their credit scores, as 61% of businesses were unaware of their credit status, which is a crucial factor considered by lenders. The interview highlighted the need for greater education and awareness among small businesses regarding credit assessments and the importance of separating business data from personal credit history. Menzies shared her personal experience of facing challenges in securing funding for her tech businesses due to previous credit issues, underscoring the need for alternative sources of business credit data. To address the credit gap and improve access to finance for SMEs, Menzies and Smith emphasized the importance of collecting comprehensive business credit data from alternative sources and leveraging financial technology to streamline the credit scoring process. By utilizing digital platforms and guarantee schemes, funders can conduct more accurate risk assessments and support SMEs at scale. The research findings also highlighted the underserved nature of the startup and micro business markets by formal financial institutions, despite their potential to drive economic growth. Menzies and Smith stressed the importance of unlocking funding opportunities for these segments to fuel economic development and job creation in South Africa. In conclusion, the 'SA SMME Access to Finance Report' serves as a valuable resource for policymakers, financial institutions, and SMEs to collaborate on enhancing access to funding and promoting the growth of small businesses in the country. By implementing the recommended solutions and embracing innovative approaches to credit scoring and financing, South Africa can pave the way for a more inclusive and prosperous economy.