There are growing signs that business and investor confidence is beginning to stabilise in South Africa. Inflation has eased, energy supply has improved, and economic forecasts point to modest growth following several difficult years marked by weak demand, high costs and persistent uncertainty.
But, Hiten Keshave, CEO and co-founder of Unconventional CA, says improving market conditions are masking a more fundamental constraint in the SME sector.
“Many people think that once conditions improve, funding becomes easier to access. But the reality is that there’s still a big gap between the funding that exists and whether businesses are ready to qualify for it,” says Keshave.
Despite an increasingly broad and active funding landscape, the estimated SME funding gap exceeds R350 billion. According to Keshave, this shortfall is not driven by a lack of capital, but by a mismatch between funding requirements and business readiness.
This disconnect is becoming more pronounced as capital returns. South Africa continues to hold the largest stock of foreign direct investment in Africa, estimated at more than $120 billion, with new commitments across renewable energy, infrastructure, mining services, fintech and business services. Investment pipelines for 2026 indicate a growing willingness to deploy capital, including into the SME sector.
However, access to funding is becoming more selective rather than more accessible. Funders are raising their expectations, placing greater emphasis on financial controls, compliance discipline, governance and predictability.
According to Finfind’s South African MSME Access to Finance Report, there are more than 315 active funders offering over 600 funding products across debt, equity, grants and blended instruments. Yet approval remains concentrated among a relatively small group of businesses that are able to demonstrate formal financial management, clear cash-flow forecasting and operational structure.
For policymakers, investors and lenders, SMEs remain central to the growth outlook. The sector accounts for the majority of registered businesses and is responsible for a significant share of employment. On paper, 2026 should be a stronger year for SME investment than those that preceded it.
In practice, the funding gap is most visible among smaller enterprises. Formal micro businesses, defined as those with annual turnover below R1 million, account for more than 86% of funding applications and contribute over 80% of SME job creation. They are also the least likely to secure funding approval.
From an investor or lender perspective, the reasons are consistent. Many SMEs remain owner dependent, with decision making concentrated in a single individual. Financial controls are often weak, governance structures informal and compliance inconsistent. Business and personal finances are frequently intertwined, complicating risk assessment.
Keshave says, “These aren’t technical issues. If a business can’t show steady cash flow, clear decision making and the ability to operate without the owner, funders see it as a risk.”
Cost pressures continue to add strain. While load shedding has eased, electricity tariffs are set to increase by more than 5% in the 2026 to 2027 financial year. Logistics inefficiencies continue to raise transport and inventory costs, while working capital remains constrained for businesses without strong balance sheets or credit histories.
At the same time, access to funding is increasingly shaped by measurable indicators. Credit approval decisions rely heavily on cash-flow visibility, tax compliance, forecasting accuracy and debt servicing capacity. For equity investors, expectations extend further to include governance standards, risk management practices and basic environmental and social compliance.
The result is a growing divide within the SME sector. Businesses with formal financial management, diversified revenue streams and at least six months of operating runway are more likely to attract funding in 2026. Those without these fundamentals risk exclusion, even as overall investment volumes rise.
As South Africa moves into 2026 with improving market conditions and renewed investor interest, the opportunity for SME expansion is real. Whether that opportunity translates into sustained business growth and employment will depend less on how much capital enters the system, and more on how many businesses are prepared to meet the standards attached to it.
Capital is returning, but the ability to absorb it remains uneven.
