Faster funding process needed for SA’s SMEs

One of the biggest pain points for South African SMEs trying to grow in a tough market is that the funding process just takes too long: generally, between 2-3 months, with some funders taking as long as 9 months, says the chief executive of one of the country’s leading SME finance specialists, Spartan SME Finance.

The consequences for an SME of funding that takes too long to arrive are often devastating to their business, says Kumaran Padayachee, the chief executive of Spartan. Many SMEs simply do without the funding, which means they forfeit opportunities to secure contracts or other expansion opportunities that would have helped them grow.

The cost of missed opportunities and lower growth for thousands of local SMEs has a major knock-on effect on the South African economy. It’s estimated that SMEs make up 91% of formalised businesses, provide employment to about 60% of the labour force, and their total economic output accounts for roughly 34% of South Africa’s GDP.

Padayachee says it’s difficult to put an exact number to the cost to the economy of slower SME growth, but says the need to operate in a supportive financial environment is 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.”

One hallmark of SME-empathetic finance institutions is that they realise that when SMEs get an opportunity, they need to mobilise quickly, with a turnaround time of no more than 5-10 days. The challenge, says Padayachee, is for established funders to reengineer their processes to deliver a faster result.

“The answer lies in creating funding models that are fit for purpose and meet the continuum of funding needs for South African 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,” he said.