BUSINESS NEWS - South Africa’s traditional funding and credit system is creating barriers to growth for small and medium-sized enterprises (SMEs), restricting their access to finance and putting pressure on business liquidity, job creation and productivity.

A key concern is that lenders often assess small businesses using financial statements that are months out of date, alongside credit scoring requirements that exclude many otherwise viable enterprises.

For example, a business with a February financial year-end applying for funding in December may be assessed using financial information that is already 10 months old.

According to Daniel Goldberg, founder and CEO of SME funding provider Bridgement, this approach fails to reflect the realities of running a small business, where circumstances can change significantly within a few months. 

Seasonal sales fluctuations, inflation, interest rate movements, supply chain disruptions and the loss or acquisition of major customers can all affect a company’s financial position. Historical financial statements may therefore provide an incomplete picture of its current performance and ability to repay finance.

Management accounts are sometimes used as an alternative, but these also have limitations. They may lack the accuracy and consistency of formal financial statements, making it difficult for lenders to assess businesses reliably.

The challenge is compounded by the fact that many South African SMEs do not have formal financial statements, dedicated accountants, cloud-based accounting systems or audited financial records. This does not necessarily indicate poor business management, but often reflects the demands and limited resources involved in running a small enterprise.

As a result, young and growing businesses can find themselves excluded from traditional finance at a time when additional capital could help them expand.

The 2025 South African MSME Access to Finance Report highlights the need to reform traditional credit scoring models and increase the use of open finance and alternative data to improve access to funding.

Real-time data offers an alternative

There is growing interest in alternative credit-scoring methods that use live financial information to assess a business’ performance.

Bank transaction records, digital payment activity, point-of-sale data and information from cloud accounting platforms can provide lenders with a more current view of a company’s financial position.

This information can show how much money is coming into a business, its expenditure, whether customers are paying on time and whether revenue is increasing or declining.

The International Finance Corporation (IFC) has also highlighted the emergence of new credit scoring models using alternative data and artificial intelligence (AI) to assess borrowers who lack established credit histories.

Bridgement is among the providers using this approach, assessing SME funding applications through current bank and accounting data rather than relying exclusively on historical financial statements.

Goldberg argues that real-time information provides a more accurate indication of a business’ current circumstances and potential performance than annual financial statements alone.

He says a business that has adapted its operations, secured new customers or experienced significant changes in revenue should not necessarily be judged on financial information from the previous financial year.

Funding the SME sector

Bridgement reports that it has deployed more than R2b in funding to South African SMEs since its launch, through business loans, revolving credit and invoice finance.

The company has also secured R330m in funding commitments from Standard Bank and Rand Merchant Bank to expand its SME lending capacity.

It says its platform is integrated with three major cloud accounting systems, Xero, Sage and QuickBooks, allowing it to use existing business financial data in its assessment process.

According to the company, businesses can complete applications in about two minutes and receive a decision on the same day, compared with the potentially lengthy processes associated with traditional funding applications.

Goldberg believes financial statements should remain part of the assessment process where available, but should not be the sole deciding factor when determining whether an SME qualifies for funding.

The broader challenge for South Africa's lending sector is to develop assessment models that better reflect how small businesses operate today. Improving access to finance for viable SMEs could support business expansion, strengthen liquidity and create opportunities for employment and economic growth.

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