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The South African SME sector is set for a major crisis unless access to adequate business funding can be ensured as a matter of urgency claims Lulalend CEO Trevor Gosling, following a survey the online lender held with 100 small businesses.
Over 90% of the respondents to the survey, titled the Key Funding Challenges for South African SMEs 2017 report, had less than 10 employees — just two percent employed more than 20 employees — while the about half were from the business services, advertising and media, professional services and IT sectors.
Lulalend CEO Trevor Gosling believes traditional lenders have lost their appetite for short-term unsecured business lending, leaving many SMEs with limited options for accessing much-needed – often life-saving – funding.
He points out that 76% of respondents reported that they had undergone a “tedious months-long paperwork-heavy process” in applying for business funding from traditional lenders, only to have their applications denied.
“Considering access to credit was the number one business challenge for nearly three out of every five SMEs surveyed, this disconnect between the needs of business owners and the lenders that have traditionally supported them is creating conditions of high risk and volatility,” he pointed out.
Lulalend survey reveals that 76% of respondents reported that they had to complete piles of paperwork only to have their applications denied
Gosling says considering the volatile economic environment, it is alarming that nearly a quarter of respondents listed “unforeseen circumstance” as their primary reason for seeking funding.
“When businesses are already operating at minimal profitability or even at a slight loss, any unforeseen circumstances requiring an injection of cash could spell disaster for them unless there is quick access to much-needed short term funding.
“But traditional lenders are falling short here, choosing instead to limit their exposure to the riskier short-term unsecured lending our SME sector so desperately needs,” says Gosling
He however reckons there is some light at the end of the tunnel and points out that 30% of SMEs believe they will achieve revenue growth of more than 50% over the next year.
But he says cumbersome regulatory requirements, extensive paperwork, and exhaustive amounts of time required to apply for loans – combined with lenders’ hesitance to incur risky unsecured debt – will limit the SME sector’s ability to drive much-needed economic growth and job creation.