Unlocking economic growth through SME Financing

Unlocking economic growth through SME Financing

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It is quite widely known that the SME sector contributes up to 60% towards the Gross Domestic Product and labour force – which is why it is viewed as a lever for increasing economic growth.

You’d think with SMEs providing that much benefit traditional lenders, such as banks, would see the importance of making access to credit more easily accessible for SMEs, and work to find a suitable solution. The reality, however, is that 89% of SME’s that apply for funding through a bank don’t get financing that they went in for. There are various reasons why but often the process becomes too tedious and time-consuming or those that see it all the way through land up being declined.

This might sound quite discouraging if you’re a business owner, but the good news is that alternative lenders have started to take action and are addressing the need to assist SMEs. Not only that but they are holding each other accountable for responsible lending practices by driving industry standards through an organization called SASFA (South African SME Finance Association) to ensure SME customers are fairly treated and the reputation and sustainability of this SME Finance sector is maintained.

To read more about SASFA and how they are working with lenders like Lulalend to unlock economic growth read the full article here.

Three key challenges for SMEs in 2018 and how to overcome them

Three key challenges for SMEs in 2018 and how to overcome them

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The slowing economy, recent rating downgrades, on-going political instability, and a growing budget shortfall is leading to low business confidence. SMEs are certainly feeling this: in our recent Key Funding Challenges for South African SMEs report, only 30% of SMEs believed they would achieve revenue growth of more than 50% over the next year.

Conditions are unlikely to change dramatically over the next few months, prompting many SME owners to wonder how their business will survive and thrive in 2018. During the course of preparing our recent research report, we spoke to a hundred SMEs across the country to find out what their key challenges are.

Here’s our round-up of the biggest challenges SMEs are likely to face in the year ahead, and how to overcome them:


#1 – Funding

With traditional lenders shying away from unsecured short-term business funding, many SMEs are left without the working capital they need to grow, take advantage of new opportunities, and negotiate more favourable terms with suppliers and customers. Access the credit emerged as the biggest challenge faced by South African SMEs, with three out of five stating it as a key obstacle to their growth. SME owners should therefore turn toward the new generation of digital-first lenders that can take the business’ overall health into account when assessing applications for funding, instead of relying on antiquated box-ticking exercises.

#2 – Marketing

Marketing, customer acquisition, and customer retention were among the top challenges among our SMEs surveyed. This is alarming, since nearly half said expanded marketing efforts would have a direct positive impact on business growth. Entrepreneurs should become familiar with cost-effective marketing tools such as websites, email marketing, social media, and public relations to build relationships with current and potential customers.

#3 – Cash flow management

Improved cash flow management emerged as a top challenge for local SMEs, with financial reporting and admin not far behind. One issue may be that of financial literacy: many entrepreneurs start businesses out of necessity, and lack the basics of proper financial management. There are a plethora of free online courses available to entrepreneurs that can help build a better understanding of financial management. Online accounting tools such as Xero can also provide excellent support to SMEs by automating much of the day-to-day accounting processes.


The spirit of entrepreneurship in South Africa

The spirit of entrepreneurship in South Africa

Reading Time: 4 minutes

In a recent article by the Huffington Post they stated that “Knowing the real South Africa is to know, and be familiar with, the ambitious entrepreneurial spirit that runs through its tributaries and flows like a river into the heart of a nation.” This capture the essence and state of entrepreneurship in South Africa. It is a ripe, fertile environment that is breeding some of the finest business trailblazers.

Well-known entrepreneurs like Elon Musk founder of SpaceX, Koos Bekker of Naspers are a testament to the quality of entrepreneurs coming out of South Africa. Alongside Lulalend CEO, Trevor Gosling, in Ventureburn’s Top 31 entrepreneurs under 40 making waves in South Africa is the CEO and co-founder of Yoco, Katlego Maphai. We asked him if we could get his perspective on the state of entrepreneurship in South Africa and share some thoughts with us as a locally bred entrepreneur.

 Katlego was part of an incubator program and gained some corporate experience before moving on to Yoco, a mobile card reader and point of sale app. The business has been going for 4+ years now and has recently met a huge milestone of 10 000 customers.  He shared with us that being part of a start-up has involved sacrifice and has brought with it a lot of emotional expectations in hoping the business succeeds.

Q: Starting and owning a business involves grit. Not every business is a success story. Looking back, how have you used the setbacks to learn and grow in a personal and business capacity?

Katlego: Setbacks are a test of resilience and tenacity. With the right attitude, you can use them to identify opportunity, and I think that’s what sets true entrepreneurs apart from the rest. They see setbacks, not as failures but opportunities that give you the chance to decide whether your business is going to tank or you’re willing to go in a new direction.

When setbacks happen it’s really an opportunity to get perspective from those around you – your board, team members, or investors, who can provide guidance as you determine the new direction.

Young entrepreneurs need to stop seeing setbacks as a failure and start seeing them as valuable lessons. When you start to do that your perspective changes and you see failure as a sign of how much you are trying new things, not a negative reflection of your achievements.

Q: What are the things you think are important for any business owner to stay focused on throughout the journey?

Katlego: For us at Yoco, the golden thread is that we are ruthlessly focused on the customer. We orientate ourselves around them and build things around their journey – not the other way around. Irrespective of the level of experience, the customer should always come first.

Q: How would you encourage small business owners to make good decisions, and how does one determine which to focus on at different stages of the business?

Katlego: At Yoco we make decisions to reinforce the golden thread if you’re focused on that you’re orientating all your decisions properly. The equation of good business decisions is balanced out with the customer journey.

Q: The early stages of a business often require thought through, but also quick decision-making processes. How do you navigate the decision-making for the best interests of the business?

Katlego: For me, there are two things that drive the decision process. The customer journey and the competitive landscape. Firstly, a venture needs to aspire to treat it’s 10 000th customer as it treated its first customer, this is the true measure of scaling with excellence. Strategic decisions are made with the customer journey in mind so they need to ask themselves how much time am I dedicating to the current version of the customer journey versus the future version of the journey. Secondly, decisions also rely heavily on the competitive landscape. Business owners need to have a both a here and now mindset and a forward-looking mindset. They need to keep in mind what will be keeping them ahead of the competition in 2-3 years and how they will be evolving.  It’s important to ask yourself how is your business evolving, assessing investments in time, effort and resources over the short and long term alike. True advantage is built over the long term, not with day to day tactical decisions.

Q: How does an entrepreneur find the balance between planning and risk-taking, and what would you say that looks like?

Katlego: I see these as the same thing. Let’s be clear, hedging bets is not the same as taking risks. Strategy involves seeing where the market is going and how to invest as a company into the right things to take advantage of the opportunities. That is taking a risk because you won’t have all the data for those decisions. A lack of long term thinking can be detrimental.  Incremental gains are only short term but long term investments will determine whether your business will still be around a few years from now.

Final thoughts:

Katlego: I think what I really want South Africa’s young entrepreneurs to know is that it’s really about figuring things out. You can’t go into an incubator, do a course or get a degree and walk out thinking you have taken big steps towards the goal. That is a bit misguided. A lot of the experience and knowledge you gain is from figuring things out as you go along. You don’t have to have all the answers from the get go. You just have to start, not be afraid to fail, and take the lessons you learn from that and go at it again. Using customer centricity and subsequently being relevant as the guide on where to go next.