It’s do or die time for SMEs

ENTREPRENEURS NEED ACCESS TO ADEQUATE, FLEXIBLE FUNDING Every slight advantage could mean the difference between success and failure.

Following the African Bank crisis a few years ago, due to non-payment of unsecured loans, traditional lenders largely lost their appetite for exposure to unsecured lending. This left most SMEs without access to traditional banking funding.

Where such loans are on offer, the red tape in the application process can take over three months to work through, with no guarantee that the loan will be awarded.

Access to adequate, flexible funding is the top priority for SA SMEs over the next six months. In a time of constrained economic growth and difficult trading conditions, profits are likely minimal, so any event where they need quick access to funding could spell disaster or ruin if the SME doesn’t get the needed funding.

Innovative fintech companies have emerged in the wake of big banks. The Disrupt Africa Finnovating for Africa 2017 report found SA is home to 94 fintech start-ups, 22 of which offer a form of lending support. Such lenders are able to adapt quicker to changing market needs than their big traditional peers, and are playing an increasingly important role in supporting SMEs. They can also process loan applications in a matter of days.

SME owners also need to play a more active role in ensuring their businesses are resilient enough to withstand hardship. Many SMEs lack basic accounting and administrative processes, leaving owners blind to potential weak spots.

Successful entrepreneurs can take calculated risks to accelerate their growth and expand into new markets, but without a solid understanding of the current state of their business, any risk they take is potentially ruinous. A lack of adequate financial reporting also limits SMEs’ ability to secure funding.

Technology can support SMEs in strengthening their administrative and operational processes. Even basic use of something like Excel could give owners insight into the state of their businesses. Online accounting software gives SMEs enormous authority over their finances.

SMEs should prioritise marketing their business effectively. Technology can provide cost-effective marketing opportunities to SMEs and assist with reaching and influencing key stakeholders. Google AdWords, social media profiles, LinkedIn groups, and even a basic website increases the SME’s exposure in the market, and reassures potential lenders that the business is well-supported and healthy.

Entrepreneurs should also seek membership of relevant associations and industry bodies, to draw on their knowledge and research capacity and get access to other businesses and business owners.

Whether it’s an equity partner providing much-needed financing in the early stages of a business, or a business partner providing goods or services complementary to an SME’s core business, effective partnership is essential for long-term business sustainability.

However, ensure the partner shares similar values and ethics, and strive toward building long-term trust to ensure mutual benefit between the two businesses.

Trevor Gosling is CEO of Lulalend