Among the many challenges facing entrepreneurs in Africa’s third largest economy, access to small business funding often tops the list. SMEs are less likely to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family to launch and run their businesses.
The 2025 MSME Finance Gap Report indicates that the financing gap has increased to $5.7 trillion (R95.3 trillion), with women-owned MSMEs accounting for 34% of this gap.
It’s no surprise that many South African businesses struggle with securing capital for several reasons, including:
- Limited options for viable funding solutions.
- Stringent lending requirements among available options, including a comprehensive business plan, substantial collateral and a higher than average credit score.
- The difficulty of knowing how to apply for business funding or finding the time to do it.
Given VAT increases, high inflation, and infrastructure challenges that impact South African SMEs, access to affordable and flexible funding is key for small business growth.
Positive Shift in South African Business Funding
The financing landscape is evolving quickly. With the rate at which technological advancements are taking place, business funding is becoming more accessible. Unlike traditional banks that have stringent requirements, lengthy approval processes and extensive paperwork, alternative lenders have made it easier for small businesses to access funding.
In your search for business funding, the key to success lies in knowing where to look for these opportunities.
If you own a small business and need a capital boost to grow your business, invest in new opportunities, or expand your team, keep reading for eight valuable tips to secure small business funding in South Africa.
Ready to take your business to the next level? Explore how our Revolving Capital Facility can help you grow. Apply for small business funding online in minutes.
8 Small Business Funding Solutions You Can Tap Into
With limited access to capital, increasing revenue can be a challenge for small businesses.
Here are eight options you can explore to secure small business funding in South Africa:
1. Asset-based financing
If you have high-value assets or a list of purchase orders but have limited operating or credit history, asset-based financing is an option.
This type of financing involves using your equipment, inventory or future purchases as collateral for a loan or line of credit. It’s often a quick way to access funds, as asset-based lenders typically don’t need excessive paperwork, and don’t have strict credit criteria.
The downside to asset-based financing is that during times of economic uncertainty the value of physical assets depreciates.
This makes it a higher-risk lending option that may be more difficult to secure. Asset-based financing comes with higher interest rates and stricter lending criteria.
This may increase the financial burden on the borrower and limit the effective value of the assets over time.
Smart tip
Manufacturing businesses often benefit from this lending option by leveraging their equipment to secure funding for raw materials, overhead costs and marketing efforts. As a small business, you may however find that alternative funding options like Lula’s Revolving Capital Facility and Capital Advance are easier to secure.
2. Private Equity (PE) firms
Private equity firms invest in established businesses that are looking to expand, restructure or increase profitability. Unlike incubators, which focus on start-ups, PE firms typically target businesses that have a proven track record and are generating revenue.
They offer capital in exchange for equity or a share in company management. PE firms can provide substantial funding to businesses that need it for scaling operations, entering new markets or making strategic acquisitions.
Smart tip
If your business is established and looking to grow, private equity could be a funding option to consider. Many PE firms bring valuable expertise and connections, offering not just capital but strategic guidance to fuel growth.
3. Angel investors
Angel investment is expanding across Africa and is mostly concentrated in South Africa, as it leads with the highest share of angel investors at 15%.
Angel investors, or ’angels’, are individuals or groups that invest in start-ups with venture capital, particularly in their early stages. If your business isn’t ready for formal financing options, angel investing could be a viable option.
Angel investors often continue investing after making an initial capital injection. 72% of African angels provide follow-on support, which may also include knowledge and access to other income sources.
One potential downside is that angels often seek shares or equity in your company in exchange for capital, so consider this before pursuing this route.
Smart tip
Wondering how to secure funding for a business through an angel?
According to the African Business Angel Network (ABAN), building an extensive personal network is crucial, as nearly a quarter of angels in Africa are found this way. Attending start-up events, and building referrals is also important.
4. South African SME Fund
To break free from the constraints of limited access to business funding, you could consider a private development programme.
The SA SME fund is one of the country’s largest institutional investors, with over R1.4 billion in investment capital.
It stands out for its wealth of top-class funder expertise, which Thomas McKinnon, Chief Growth Officer at Lula believes is crucial for driving growth.
He says, “The SA SME fund includes representatives of nearly ¾ of the JSE’s top-40 companies. It was created specifically to provide high-potential entrepreneurs and SMEs with funding.”
The fund helps both established and start-up businesses in launching or expanding their operations, thanks to a fund assembled by this group of South African CEOs.
The fund is divided into two categories:
- Venture capital (including seeding, pre-revenue, and post-revenue funds).
- Growth funds (for revenue-generating and profitable businesses).
Smart tip
The fund typically invests in businesses with an enterprise value of under R100 million, making it ideal for established small businesses.
5. Crowdfunding platforms
Crowdfunding – the practice of raising funds from the general public for business ideas – is on the rise. Forbes predicts it will have a global value of R129.2 billion by 2031.
This fundraising mechanism is also growing in South Africa, leading to an increase in the number of crowdfunding platforms available to South African SMEs.
“Crowdfunding is increasingly seen by small businesses as an alternative to traditional lenders, such as banks and government funding, for raising business capital,” says McKinnon.
Smart tip
Crowdfunding is most effective for novel business ideas or initiatives that tap into extremely popular demand, like new technology.
If your business is built around one of these, crowdfunding could be a quick route to funding. If not, stay tuned for more suitable options.
6. SEFA and other government funding programmes
If you’re searching for the best business funding solution to facilitate growth or take advantage of new opportunities, there are also government funding programmes.
The South African government recognises the need for SME funding across the country and has introduced several small business funding initiatives.
The Small Enterprise Finance Agency (SEFA) is perhaps the best known, offering a wide range of small business loans and post-investment support. It mostly extends support to newer businesses that lack collateral or smooth cash flow.
The Small Enterprise Development Agency (SEDA) is another government agency specialising in non-financial assistance. This includes mentoring businesses in creating business plans and preparing for market expansion.
Finfind is another option. Instead of directly providing funds, it acts as a platform connecting business owners with investors. It has more than 600 investment options from the public and private sectors to choose from.
Smart tip
If you’re a small business owner in South Africa looking for small business funding, there are a number of government-led programmes that could help you secure capital to invest in your business.
7. Credit facilities or revolving loans
Small businesses unable to secure traditional bank loans may qualify for a credit facility, which often offers more flexible terms, quicker access to funds and tailored repayment options.
With this type of funding, a business can draw down funds as needed, up to an approved funding limit.
Overdrafts and lines of credit fall into this category, and they may also be called revolving loans, allowing you to borrow, repay and borrow again without reapplying each time.
Lula’s Revolving Capital Facility is an alternative equivalent, providing small businesses with access to up to R5 million in small business funding as an advance on future predicted income.
Securing a credit facility from a traditional lender in South Africa today is often challenging due to complex application processes and stringent qualifying criteria in a difficult lending climate.
Lula’s use of innovative technology fast-tracks the approval process. This means you can receive funding in your account within as little as 24 hours, if your application is approved.
Smart tip
If you’re uncertain about the type of funding that is best suited for your business, you can seek guidance from business advisers, financial consultants or organisations that specialise in financial products.
8. SME financing platforms
A heightened need for flexible working capital in South Africa has led to a wave of new small business funding opportunities.
Digital funding and banking platforms provide a range of services for businesses seeking access to funding. Lula is the only provider with a funding and banking solution exclusively tailored to SMEs.
We’re committed to providing a fast and efficient means for SMEs to access funding.
Fast funding solutions are proving transformative for South African businesses, especially during times of economic uncertainty.
“Sometimes you need financing in a very short space of time. We get this,” says McKinnon. “It’s why we’ve adapted our products by offering faster capital and financial solutions that allow entrepreneurs to focus on growing their businesses instead.”
When you’re applying for business funding, it’s important to ensure your personal and business credit scores are healthy to increase your chances of being approved. Here’s more about why your business credit score matters.
It may also benefit your business to choose a business bank account that helps to streamline the business funding application process.
Access to capital is right at your fingertips. Apply online in minutes to see if you qualify for up to R5 million in business funding.
