Natisha Lazarus answers the three biggest challenges facing SMEs

Small and mid-sized businesses are the cornerstone of South Africa’s economy. They make up approximately 98% of the businesses in South Africa, and yet they continue to struggle to obtain finance to either start or grow their businesses. 

The challenges facing SMEs existed long before the Covid-19 pandemic and they will continue to exist in the future.

But does this need to be the case? As all major South African commercial and business banks, including fintechs and alternative lenders that have entered the market, provide financial solutions for businesses. Despite this, surveys conducted with SMEs reveal that one of the biggest challenges SMEs face is ‘we are unable to secure funding to start a business or funding to enable our businesses to grow.’

Understanding the SME landscape

As a business bank that focuses on the SME market and helping businesses to grow and evolve into mature organisations, we have identified three key areas that SMEs need to focus on if their goal is to become funding fit:

1. How do I enable my business to become credit worthy? 
2. What funding options are available in the market? 
3. How do I apply the funding to my business to maximise growth opportunities?

What’s important is businesses to understand that despite the various financial solutions available in the market, the business owner needs to ensure that the business is credit worthy to

7 Top tips to becoming credit worthy

Establishing business credit is important to all SMEs, however, it can take time and this can be  challenging for business owners. Accept that it won’t happen overnight and then follow these key steps:

1. Ensure your personal and business credit ratings are in order. To do this, maintain monthly payment obligations to avoid defaults and judgements being listed against your name on a credit bureau. Remember, as the business’s owner, your personal credit history will be reviewed as closely as the business’s credit history.
2. Update your information with credit bureaus. Credit bureaus collect data, which is translated into a business score, which financiers utilise in determining the outcome of your application.
3. Maintain your public records. Should you have any credit bureau listings against your personal/business name, you need to apply for them to be rescinded as they may continue to reflect on your profile.
4. Route all business trading (turnover) into your bank account to build a track record, as most banks base certain credit decisions on the level of turnover routed via the bank account.
5. Maintain separate personal and business bank accounts. 
6. Apply for credit before you need it and do not overdraw your account without prior engagements with your bank. This will avoid dishonoured payments and unnecessary fees being charged to your account, which impacts on your credit worthiness as well. 
7. You can consider alternative lenders, as the conventional banking solutions may not be conducive to your business requirements.

Establishing a good business credit rating may assist businesses in negotiating low interest rates with financiers. To avoid a decline on your credit application, take note of the above guidelines – they will assist in improving your business creditworthiness.