Why Most SMEs Struggle to Get Funding — And How to Fix It

The money is there, but the businesses are not ready for it. That is how Jameel Khan, co-founder of Unconventional CA, describes South Africa's SME funding gap, a shortfall often put at R350 billion.

Stuck between start-up and scale

Speaking to host Maryna Steyn, Khan said the gap bites hardest on what he calls the missing middle: businesses turning over roughly R1 million to R50 million. By that point an owner has survived the early years and wants to grow, but lenders start asking for financial statements, tax and company-registry compliance and a track record that many have never kept.

He sees two causes. Owners spend the early years doing everything themselves, so the books come last. And funders have raised the bar: banks have strict requirements, and in Khan's view development funders have moved theirs closer to the banks'. "It's a learning gap" on the owner's side, he said.

Profit is not cash

Khan's first piece of advice is to understand your own numbers. Profit and cash flow are different things, he said: a business can show a million rand of profit and still have little in the bank if it has just paid for equipment.

Many owners hand everything to an accountant and look away. He suggests sitting down with the accountant for about two hours a month and asking for the figures to be explained. Founders often feel it is too late to start. "It's just one bite at a time," he said.

Know why you need the money

Next, work out what the funding is for. Khan separates borrowing, which is repaid, from bringing in an investor partner, who may add skills and contacts but takes a share of the company. Even among loans the tools differ: he put purchase order finance at roughly three to five percent a month, but only for the two or three months the order takes to deliver, against 12 to 24 months or longer for a conventional loan.

He is wary of the chase for grants and the lowest possible rate. If a grant is easy to find, he said, plenty of others are applying for it. And a business making a healthy margin on a product it needs to scale can reasonably take a loan at a normal rate. Funders, he warned, will quiz the number: owners who simply split the amount into percentages for marketing, sales and operations are less convincing than those with a detailed plan and a repayment path.

Readiness has two halves

Khan describes funding readiness as numbers plus story. The numbers look back (financial statements, tax and company registration up to date) and forward, with a financial model and cash flow forecast whose assumptions can be defended. Forecasts need to be justified, he said, not a simple claim that the business will grow exponentially.

The story is who the owner is, what the business does and why, because a funder is entering a relationship. Once that is in place, he urges owners to target funders that fit, such as specialist green, youth or women-owned funds, instead of applying to everyone and hoping.

Fast money has conditions

On timelines, Khan advised running two tracks. Government and development funders tend to be cheaper but slower, with investment committees that sit monthly. Private capital is quicker and costs more. He had recently heard from five entrepreneurs who wanted money within four days, none of them prepared.

The billboards promising funding in 48 hours, he added, describe purchase order finance for businesses already on the lender's database and through its compliance checks. His closing example was an owner who wanted funding to buy the office he rented, without first working out whether owning beat renting. "Funding and market access have to go hand in hand," he said.

Mentioned in this episode

• Ember360: Jameel's education platform for entrepreneurs, mentioned at the end of the episode.
• South Africa's most dangerous SME funding failure is the missing middle: Our own look at the same gap.
• National Empowerment Fund: One of the development funders discussed in the context of unspent funding.