For years, the dominant narrative in South Africa’s startup and small to medium-sized enterprise (SME) ecosystem has been that businesses struggle because they cannot access funding. While access to capital remains a genuine challenge, some industry players argue the reality is more complex.
The real constraint, they say, lies not only in capital supply but in how effectively that capital moves through the system once it becomes available.
Kerryn Campion, COO at Aions Ventures (Aions), believes South Africa’s SME funding challenges are increasingly tied to execution failures across the broader ecosystem. Weak procurement frameworks, delayed payment cycles, poor financial management and traditional lending models often prevent capital from delivering the growth outcomes policymakers, lenders and investors expect.
“There is capital in the system,” says Campion. “The issue is that it is not flowing to the right businesses in a way that enables sustainable growth.”
As South Africa looks to SMEs as drivers of employment and economic growth, the question may not simply be how to provide more funding, but how to ensure the capital already in the system actually works.
The SME Funding Challenge is Bigger than Access to Capital
Access to finance is frequently cited as the primary barrier facing small businesses. However, recent data suggests the challenges confronting SMEs extend far beyond funding availability.
According to theFinScope MSME South Africa 2024 results only 14% of SMEs identified access to finance as a top obstacle to growth. Other structural and operational constraints ranked higher.
Cost of finance — which includes interest rates, lending fees and transaction costs — was cited by 19% of respondents. Access to markets and competition accounted for 27%, while crime and theft emerged as the most significant barrier at 32%.
Taken together, these figures paint a more nuanced picture of the SME landscape. Capital availability is part of the equation, but structural weaknesses in the business environment often pose a greater threat to sustainable growth.
“I do think access to finance is a real constraint, but the evidence suggests it is not the only constraint, and often not even the first one,” explains Campion.
In other words, the issue is not simply a shortage of capital. Instead, it is a system that often struggles to convert opportunity into sustainable business growth.
The Execution Gap in South Africa’s SME Funding Ecosystem
Even when funding exists within the financial system, it does not always reach the businesses that need it most. In many cases, capital is either poorly aligned with operational realities or arrives in forms that do not support sustainable execution.
This disconnect in the system creates a significant barrier for emerging enterprises attempting to scale.
Campion argues that the problem lies in how the broader ecosystem functions — from business readiness and procurement design to payment discipline and record-keeping.
“The problem is execution across the ecosystem,” she says. “Business readiness, record-keeping, contract design, payment discipline, and procurement realism all shape whether capital can actually work.”
For lenders, funding decisions are rarely just about liquidity, fundamentally, they’re about risk. Businesses with weak governance structures, inconsistent financial records or unclear operational capacity are significantly harder to finance.
When repayment risk increases, lenders typically respond by tightening credit requirements or raising the cost of capital. In practice, this often means responsible businesses end up paying more for funding in order to offset the failures of others.
The result is a system where capital exists, but access becomes increasingly constrained by perceived disorder in the ecosystem.
Why Winning a Contract Doesn’t Guarantee Funding
One of the clearest examples of the execution gap appears when SMEs secure contracts with corporates or government departments, but still struggle to access the working capital required to deliver.
On paper, a purchase order or award letter may represent guaranteed future revenue. In reality, it does not automatically translate into bankable financing.
From a lender’s perspective, the key question is not whether a contract exists, but whether the business has the operational capacity to deliver on it.
This includes assessing supplier networks, staffing capacity, logistics, cost structures and cash flow dynamics. Lenders must also evaluate the likelihood that the buyer will pay on time and what legal recourse exists if something goes wrong.
The challenge is compounded by the structure of South Africa’s SME sector. A large proportion of businesses operate informally or maintain limited financial records, making it difficult for lenders to assess risk accurately.
The result is what many funders describe as the “fulfilment gap” — a scenario in which businesses win contracts but lack the working capital required to execute them.
“At Aions, we operate in working capital and trade finance. We see capable businesses with confirmed orders that simply need structured support to execute. Our experience shows that when funding is aligned with fulfilment and disciplined repayments, the outcomes improve. But that requires accountability from all sides,” she says. says Kerryn.
Late Payment Cycles are Destabilising the Funding Ecosystem
Even when SMEs successfully deliver on contracts, slow payment cycles — particularly in the public sector — can destabilise the entire financing chain.
Late payments are a long-standing issue in South Africa’s procurement system, with many government departments routinely exceeding the prescribed 30-day payment period. For SMEs operating on thin margins, these delays can quickly create severe cash flow pressure.
“A business cannot meet its obligations after supplying goods or services and then waiting months to be paid,” says Campion. “That delay creates a ripple effect.”
The consequences extend well beyond the supplier.
Late payments mean businesses cannot pay suppliers or staff on time, nor can they meet repayment obligations to funders. This forces lenders to absorb higher levels of risk, which in turn leads to tighter lending criteria or higher interest rates.
In other words, delayed payments create a domino effect across the entire funding ecosystem.
The issue also signals risk to investors and lenders evaluating SME financing opportunities. If repayment certainty cannot be guaranteed, capital becomes more expensive and less accessible, particularly for smaller businesses.
What a Healthier SME Funding Ecosystem in South Africa Could Look Like
Improving SME financing outcomes will require coordinated reform across lenders, government and businesses themselves.
For lenders, this means designing financial products that align closely with how SMEs actually operate. Contract finance, invoice finance, milestone-based disbursements and revenue-linked lending models are increasingly being explored as alternatives to traditional collateral-based lending.
The government also plays a critical role. Faster and more reliable payment systems could significantly reduce risk across the SME financing ecosystem. At the same time, entrepreneurs themselves must strengthen financial discipline and operational governance.
Better record-keeping, clearer financial reporting and stronger separation between personal and business finances can all improve a company’s ability to access capital.
“If SMEs and funders had confidence that approved invoices and valid public-sector contracts would be paid on time, a significant amount of capital would flow more freely and more cheaply,” concludes Campion.
Execution Will Determine the Future of SME Funding in South Africa
South Africa’s SME and startup sector remains central to economic growth, job creation and transformation. However, simply expanding access to finance may not solve the underlying structural challenges facing emerging enterprises.
As Campion argues, the real issue lies in how effectively the ecosystem enables businesses to execute once funding becomes available.
From procurement design and payment cycles to financial discipline and lending models, multiple structural factors will determine whether capital translates into sustainable growth.
Fixing these execution gaps could unlock significant funding already present in the financial system.
Or, as Campion puts it:
“The opportunity in South Africa is significant. But sustainable growth depends on execution. Without it, even abundant funding will not deliver the outcomes we want.”
Lungile is the Digital Editor for Startup.Africa, with a knack for storytelling, technology and innovative ideas. Working with Startup.Africa, she takes simple ideas and turns them into amazing stories.
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