Why 3 Out of 4 South African SMEs Still Can’t Raise Capital

I took this article from the Venture Burn website 

https://ventureburn.com/2025/06/why-3-out-of-4-south-african-smes-still-cant-raise-capital/

World SME Day on 27 June is supposed to be a celebration of entrepreneurial grit. But for most small businesses in South Africa, it also exposes a harsh reality: only 1 in 4 SMEs raise enough capital to grow. The rest remain stuck — unable to hire, scale, or launch because their funding asks go nowhere.

And it’s not because money isn’t available.


“Capital isn’t scarce in South Africa. Fundability is,” says Luncedo Mtwentwe AGA(SA), Managing Director of Vantage Advisory and host of the SAICABiz Impact podcast. “Most startups aren’t investor-ready — and by the time they realise this, it’s already too late.” Fundability is,” says Luncedo Mtwentwe AGA(SA), Managing Director of Vantage Advisory and host of the SAICABiz Impact podcast. “Most startups aren’t investor-ready — and by the time they realise this, it’s already too late.”

Funding Is Not a Lifeline. It’s a Skill.

South Africa’s entrepreneurs often make the same mistake: they only start looking for capital when the runway’s almost gone. By then, desperation has replaced strategy. “It’s no longer about potential — it’s about patchwork,” says Mtwentwe.

This reactive approach hurts startups at every level. Valuations take a knock, investor confidence drops, and founders lose leverage. Instead, Mtwentwe believes investor readiness must become a core leadership skill — developed long before funding is needed.

His view is echoed across the startup ecosystem. From poorly structured governance and messy financials to shallow teams and vague pitches, SA startups are falling short of what investors expect. Even those with strong ideas often can’t articulate how they’ll scale, execute, or generate returns.

The Geography Trap

There’s also a hard-to-ignore location bias. “Access isn’t just about merit. It’s also about geography and networks,” says Mtwentwe. Founders outside the main metros — or without the right advisors or co-founders — often find themselves sidelined.

“Unless you’re in the right province, you can forget about raising here,” one founder told

This funding friction is driving some South African founders to raise abroad, bypassing local capital altogether. But as Mtwentwe points out, that’s not a scalable strategy — it’s a workaround.

To learn more on invoice financing head over to https://modernworkingcaptialtechniques.com

Why Capital Skips South Africa

It’s not just local bias. Capital is flowing into African tech but often into Kenya, Nigeria, and Egypt, where investor pipelines and support systems are better aligned. Speaking on the SAICABiz Impact podcast, investment professional Zama Khanyile CA(SA) pointed out that impact storytelling is a missing link.

“If we want global capital to land in SA, we need to talk about outcomes, not just income,” she said.

A Roadmap to Fundability

Despite the bleak numbers, the outlook isn’t hopeless. “You don’t need perfection — you need preparation,” says Mtwentwe. With smart execution, even lean startups can build fundable foundations. His top advice?


1. Start Early: Give yourself 6–12 months to prep before you actually need capital.

2. Get Your House in Order: Have clean books, a working compliance setup, clear operating systems, and actual contracts.

3. Team Before Tech: “Investors fund people first,” says Ncumisa Mkunqwana CA(SA), CEO of Chapu Chartered Accountants. A weak back office can kill a strong product.

4. Know Your Investor Fit: Match your stage and story with the right funder. Green finance and impact-driven VCs are opening new doors.

5. Pitch Growth, Not Just Vision: Show traction — even if it’s just early customer interest or a waiting list.

6. Get a Mentor, Not Just a Deck: Advisors and incubators can be your bridge to credibility and readiness.

7. Show You Can Sell: Investors back revenue engines. No traction, no funding.
Time to Shift the Mindset

As B20 and World SME Day discussions heat up, the takeaway for South African founders is simple: capital follows structure, not just ambition. And structure isn’t about admin — it’s about building trust.

Raising money isn’t just a milestone. It’s a signal that your business is investable, executable, and scalable. That means it’s time to stop hoping for luck and start getting fundable.

To read more of our articles on finance and fundraising, see out previous blogs.

 

How a bank looks at your business

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Table of contents

1. What factors do banks consider before lending money?
2. What do financial institutions look for in firms?
3. What ratios do banks look at for business loans?
4. Do lenders look at spending habits?
5. What can a lender see?
6. How does a bank decide how much to lend?
7.  

Financing is a key part of running a successful business: It allows you to invest, to purchase inventory, to manage your cash flow and even perhaps to acquire a competitor, to name only a few ways you could use a loan.

However, banks are also businesses. They need to be careful and diligent about lending only to businesses that are likely to repay in full and on time.

To make sure you maximize your chances of getting a business loan, it is important to understand how banks look at your business.

What factors do banks consider before lending money?

When reviewing a loan application, banks and financial institutions will generally analyze four main factors.

1. The financial strength of your business

To make sure your company is on a solid financial footing, your bank will want to have a look at your financial statements.

This means looking at your results for the last couple of years, and comparing them to industry averages.

A rule of thumb is that your borrowing capacity is guided by your net income plus depreciation, less the annual amount of repayments of existing term debt. Basically, any profit you are earning is available to cover new debt service.

2. Assets

Banks will also be evaluating your assets, both as an indicator of your company’s strength, but also in order to identify collaterals that can be pledged as a security for the loan.

In the fishing industry, for example, a bank would likely want to know whether you own boats, gear, trucks, traps, and intangible assets like licences.

A bank may be willing to take your crab or lobster licence as a security because they hold significant value. In Lobster Fishing Area 36 or 38 which is part of the Bay of Fundy, for example, a lobster licence can’t be had for less than $1 million.

3. Your management credibility

You’ll want to demonstrate that you have the skills and experience necessary to successfully run your business. Highlight how your background has prepared you well to manage your project and bring it to fruition.

It’s also a good idea to surround yourself with professionals who can help you benefit from their experience.

Banks will also look at who is advising entrepreneurs, whether it be accountants or other experts.

4. Credit score

Your personal and business credit scores are important factors a banker will consider when you apply for a business loan.

Your business credit score is separate from your personal score. Your business credit score includes reports from firms that do business with your company, such as suppliers and financial institutions. Meanwhile, your personal score is based on your past personal credit behaviour, such as whether you pay your bills on time.

Besides meeting your payment due dates, you can keep your credit score healthy in other ways. Make sure you only apply for the credit you need and avoid opening multiple credit accounts. It’s also important to separate your business credit from your personal credit—use business loans, your business line of credit and business credit cards for business purposes only (i.e., to finance investments, purchase supplies and top up working capital).

Finally, know that a poor credit score may make it more difficult to obtain financing, but will not make it impossible: there are a number of strategies you can employ to obtain a loan when you have a bad credit score.

5. Your industry’s health

The strength of your industry is one indicator that helps determine how well a business will do.

In fisheries, for example, banks would look at catches first. Are they up or down? They would then look at prices. Where are they heading? In the end, your bank wants to be paid back, then this is an important factor.

What do financial institutions look for in firms?

In assessing whether to finance a small or medium business, financial institutions look for a number of green flags. The three most important will be the following.

1. Strong cash flow

Having a strong cash flow is the first green light lenders will be looking for.

Is the business generating enough cash flow to pay the debt? This is definitely the most important indicator. “Cash is king.”

2. Small amount of debt

Having too much debt can crush a business, but being too debt averse can get in the way of running a business efficiently, as loans can be an appropriate tool to manage and preserve cash flow.

All in all, banks will look at your level of debt, and whether it is in line with your industry.

3. Business owners with skin in the game

Finally, banks also like to see that entrepreneurs are investing their own money in the company. It is an indicator that they have skin in the game, and that they are sharing the risk.

If a business runs 100% on loans, it looks like the owners are not committed to the business. But, if they are investing themselves, the relationship with the bank is mutually beneficial. It becomes a partnership.

What ratios do banks look at for business loans?

Whatever your industry, lenders will look at two financial ratios which is interpreted in percentages.

Debt-to-equity ratio: The debt-to-equity ratio is calculated by dividing a company’s total debt by the total equity of its shareholders. It shows how much debt a company has compared to its assets, and measures both a company’s ability to service its current debt payments as well as its ability to raise cash through new debt, if necessary.

Debt-service coverage ratio: The debt-service coverage ratio equals adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization, less current income taxes, distributions paid and unfunded capital expenditures incurred during the period) divided by the sum of current portion of term debt (how much principal is due in the next fiscal year) and interest expenses. It is a key measure of a company’s ability to repay its loans.

Depending on your line of business, a bank may also look at other industry-specific ratios.

In the hotel business, for example, banks will want to calculate your occupancy ratio, and perhaps perform sensitivity analysis to determine how a change in this metric would affect your financial performance. What if your occupancy goes down by 5%, can you still repay the debt?

Do lenders look at spending habits?

When trying to determine whether they will make a loan to your business, financial institutions will be scrutinizing your company’s spending history.

Is your spending in line with industry standards? A fishing company, for example, probably only needs one truck, not five or six. Business is conducted on the wharf, where the buyers will usually come pick up your catch. It’s a good sign when entrepreneurs are responsible with their spending, and business owners should know and understand that a bank might ask them to explain or justify certain spending decisions.

What can a lender see?

When reviewing your company’s loan application, a bank will be able to look at all the documents it has asked you to provide.

Those documents will most likely include your business’ financial statements as well as your personal credit report, since business owners’ personal credit habits are a good indication of the way they handle their business credit. “A bank may also ask for documents supporting your ability to reinvest in the company, such as bank statements or investment statements,” explains Daigle.

A financial institution will also be likely to ask for licences, if they are required in your industry, as well as quotes and purchase agreements if you are using the loan to acquire a piece of equipment or contract a service.

How does a bank decide how much to lend?

Lending ability is dictated first by cash flow.

Because banks are looking to reduce risk, they do not want to give a company more than it can handle. Their main focus will be analyzing how much money the business makes, and consequently, how much it can safely afford to borrow as well as specific financial ratios.

Banks will also consider whether your loan will help your business improve its revenue and profitability, thus increasing the odds that the loan will be repaid.

If a fisherman uses a loan to get a bigger boat, this new vessel may be used to increase the lobster catch from 10,000 pounds to 15,000 pounds, which goes right to the bottom line.

At the end of the day, these are the main factors: credit score, solid cash flow, impact of the lending project on the company’s finances, and healthy financial ratios.

For more on other ways to increase your working capital, visit: https://modernworkingcapitaltechniques.com

To know more about our coaching programmes and services, follow the links in the side menu.

Feel free to contact Neville on +27 83 417 0319

 

7 deadly sins in borrowing money for your business

Borrowing too little or too late can jeopardize your business

Table of contents

2. 1. 1. Borrowing too late
   2. 2. Borrowing too little
   3. 3. Focusing too much on the interest rate
   4. 4. Paying your loan back too fast
   5. 5. Failing to keep your financial house in order
   6. 6. Making a weak pitch to your banker
   7. 7. Depending on just one lender

Getting a business loan can be the fuel your company needs to reach the next level of success.

But you have to prepare yourself and your company to get the money and make sure the loan is right for you.

1. Borrow too late

You may be tempted to finance your expansion projects from your cash flow. But paying for investments with your own money can put undue financial pressure on your growing business. You may find yourself needing to borrow money quickly and doing it from a position of weakness.

When there’s a sense of urgency, it usually indicates to a banker there was poor planning, it’s often harder to access financing when you’re in that position.”

Solution—Prepare cash flow projections for the coming year that take into account month-to-month inflows and outflows, plus extraordinary items such as planned investments. Then, visit your banker and discuss your plans and financing needs so you can line up the funding before you need it. (to learn more or get our free booklet on this, click on the link)

2. Borrowing too little

You’re right to be careful about how much debt you take on. However, low-balling how much a project will cost you can leave your business facing a serious cash crunch when unexpected expenses crop up.

Solution—Develop a cash flow forecast for each individual project including optimistic and pessimistic scenarios. And then borrow enough money to ensure you can cover your project, unforeseen contingencies and the working capital required to bring your project to completion.

3. Focusing too much on the interest rate

The interest rate on your business loan is important, but it’s far from the whole story. Other factors can be just as important, or even more so.

• What loan term is the lender willing to offer?
• What percentage of the cost of your asset is your lender willing to finance?
• What is the lender’s flexibility on repayments? For example, can you pay on a seasonal basis or pay only interest for certain periods?
• What guarantees are being asked from you in the case of default? Do you have to pledge personal assets?

There are qualitative items in a loan agreement you have to think through very carefully. Some entrepreneurs will skim over the loan terms and conditions because they think they’re just legal jargon or standard terms requested by all lenders. But the truth is that terms and conditions can differ greatly between lenders”

Solution—Shop around among financial institutions for the most attractive package, keeping in mind the importance of the terms other than the interest rate.

4. Paying your loan back too fast

Many business owners want to pay back their loans as quickly as possible in an effort to become debt free. Again, it’s important to reduce debt, but doing so too quickly can cost your business. That’s because you may leave yourself short of cash. Or the extra money you’re devoting to debt reduction might be better spent on profitable growth projects.

Solution—Compare your projected return on an investment to how much interest you’re saving by paying down your loan faster than required. If you expect to earn more investing the money in your business, consider slowing down your repayment pace.

5. Failing to keep your financial house in order

It’s all too common for busy entrepreneurs to let record-keeping and other financial chores slide—with potentially disastrous consequences. It’s essential to keep good financial records, including year-end financial statements. Messy financial records can leave you in the dark about how your business is performing until it’s too late to take corrective action. It can also make it difficult to approach a banker for a business loan because not only do you lack documentation, but you’ve also shown a lack of managerial acumen.

Solution—Be diligent about keeping financial records and spend the money to hire an accountant. Also, consider getting help from a consultant who specializes in financial management to get your business on the right track.

6. Making a weak pitch to your banker

You can see how much sense your project makes, but you won’t get far if you can’t persuade your banker to get on board. Too many entrepreneurs are unable to clearly explain their company’s business plan, past performance, competitive advantages and proposed project. The result is a polite “no, thanks.”

Solution—Prepare your pitch and practice it repeatedly. Focus on explaining your business and how you’re going to use the money you want to borrow in clear and compelling terms. Remember a big part of your sales job is persuading your banker to have confidence in your management smarts and ability to build a strong business (and pay back the loan).

7. Depending on just one lender

Having a relationship with just one financial institution can limit your options, especially if your business hits a bump in the road. You don’t want one lender holding all the cards should something go wrong, So, just as you would diversify your suppliers or customer base, or your own personal investments, you want to diversify your lending relationships.”

Solution—Meet with other lenders and consider using different institutions for different types of financing products.

Get more advice to boost your chances of obtaining a business loan by downloading our free guide: How to Get a Business Loan.

To learn more about alternative ways to loans, like invoice financing, email us on nevillesol@icloud.com

 

7 simple strategies to do better business

Better business strategies are about your products or services. Not about how much you like them, but whether it meets your customer’s needs and whether your customers want to pay you for it. If that also yields more than you incur in costs, then you are well on your way. But there is always room for improvement.

Entrepreneurship is great fun, but it also has enough bumps, obstacles, and setbacks. Read the seven simple better business strategies to get ahead of your future.

The 7 better business strategies:

1. Get up an hour earlier or work an hour longer
2. Focus on the most critical work and free yourself from the “busy” work
3. Ask for help and delegate tasks
4. Don’t be afraid to fail, that only increases the chance of failure
5. Use other people’s property
6. Surprise your (potential) customers
7. Take an extra day off

#1 Get up an hour earlier or work an hour longer

We have become so used to the ‘9 to 5’ rhythm (depending on where you live, of course) that you quickly adapt to that flow. While you have typical morning people who are productive at the time and people who only experience their peak in the evening and make up for their whole day in one go. If you are a morning person, get up an hour earlier to work. If you are more productive in the evening, work an hour longer. But use that time wisely. So, work on high-priority matters or that require thinking.

#2 Focus on the most critical work and free yourself from the “busy” work

Being accessible anywhere and anytime has a disadvantage. You can lose yourself in all the hassle of phone calls, emails, and social media. You can be busy all day without accomplishing anything. Research shows that you are better able to devise a schedule in the morning (even if you are an evening person). Therefore, the tip is very simple. Start your first hour in the morning, thinking about what you want to achieve that day. Do not check your mail or social media until you have your today’s plan ready.

#3 Ask for help and delegate tasks

For many entrepreneurs, delegating is a tricky task. Sure, you are used to picking up and carrying out many things yourself. That also makes you enterprising. No matter how difficult, make sure others take over or perform your tasks for you. Which means you can focus on what you are good at. So, ask for help or organize your work smarter. Dare to let go of tasks, because it also has to do with confidence. It makes it difficult for many entrepreneurs to delegate tasks.

Tip: start with small, precise tasks that you outsource. As your confidence grows, so does the amount of work you can transfer.

#4 Don’t be afraid to fail, that only increases the chance of failure

You have to make mistakes. Not to torment yourself, but to learn from it. Entrepreneurship is a great adventure. Many things are new and challenging to estimate in advance. So, take the first step and don’t be afraid of a misstep. Just do it and gradually discover what you can do better. You learn so much more from doing than wanting to get everything under control before taking the first step too carefully. Also, get to know yourself and dare to recognize weaknesses.

#5 Use other people’s property

Small business owners can make smart use of the strengths and qualities of others. Work with companies or organizations that have something you don’t have. Customers or mailing lists that you may use. For example, a joint promotion or a collective sale. Feel free to be creative in that. Go to a strange industry. If there is a win-win, the deal is quickly sealed.

Tip: look at how supermarkets or the catering industry do this, which regularly come up with creative promotions.

#6 Surprise your (potential) customers

Whatever the product or service you sell, doing better business strategies is about adding value to your customers. These are, of course, primarily your existing customers, but also your potential clients. Surprise them with something unexpected. Of course, you can also collaborate with others. It helps them and you. See strategy no. 5. Use the extra hour that you got from tip no. 1 to work out some excellent plans.

#7 Take an extra day off

Also a difficult one for many owner-managers: taking a day off. And I mean really taking time off, so no mail or social media at all. I think that is one of the most challenging things to do. But as much fun as your job is, and you might not even see it as work, sometimes take a full distance from it. It may sound a bit strange, but it can spark the fiery passion you already experience when you turn the “button” back on.

With entrepreneurial greetings,