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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. This was the key takeout from the just-released Key Funding Challenges for South African SMEs 2017 report developed by online lender Lulalend.

According to Lulalend CEO Trevor Gosling, 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. “76% of respondents to our national survey of SMEs said 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 #1 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.”

Lulalend is a digital provider of business funding to South African SMEs, which uses unique scoring technology to consider a business’ real business health calculated on a variety of financial and operational criteria. By using actual business data, Lulalend provides quick, easy short-term funding through an online interface.

Gosling says considering the volatile economic environment, it is particularly 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.”

Gosling adds that there is room for optimism in the SME sector. “According to the findings of our survey, 30% of SMEs believe they will achieve revenue growth of more than 50% over the next year. However, lack of access to funding, driven primarily by 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 our SME sector’s ability to drive much-needed economic growth and job creation.”

The rise of non-traditional lenders in the South African SME sector points to a shift in the way the market operates. “A new breed of technology-first fintech company is disrupting traditional lenders’ dominance in the SME sector, by providing accurate and quick loan application processing. We believe this is the best route to a strong and vibrant SME sector that can help realise the ambitions of the National Development Plan and grow the South African economy for the benefit of all.”

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