As South African small and medium-sized enterprises (SMEs) grapple with an escalating financial storm, a recent report from Vantage Advisory revealed a grim reality: 49% of SMEs are burdened with debt levels far beyond their repayment capabilities.
This dire situation is compounded by issues of cash flow, with 24% of SMEs reporting significant struggles over the past year.
Luncedo Mtwentwe, managing director of Vantage Advisory, elaborated on the findings from the 2024 State of Small Business Report by Xero.
“Over 72% of our SMEs are resorting to personal savings just to survive. The statistics are alarming. Many businesses are unable to pay their employees or suppliers on time, a clear indication of their financial distress,” Mtwentwe said.
He also highlighted the urgent need for SMEs to reassess their debt management strategies to cultivate financial resilience.
“The debt crisis facing small businesses in South Africa is real. SMEs cannot rely solely on government assistance,” Mtwentwe warned.
“By adopting healthy financial habits now, business owners can break free from this cycle of debt. A clear and realistic plan is essential for ensuring that debt does not merely fund daily operations without a pathway to future revenue.”
As the country braces for next week’s budget speech, the stakes are higher than ever for SMEs.
“Amid increasing uncertainties—ranging from potential funding cuts and looming tariffs under President Trump to rising living costs and the threat of recurring load shedding—SMEs are teetering between fragile optimism and the harsh reality of persistent debt,” Mtwentwe said.
Despite a cautious optimism projected for 2025, with signs of recovery in business and investor confidence, economists have downgraded growth forecasts from 3% to a mere 1.5%.
This downgrade, according to Mtwentwe, serves as a stark reminder of the economic challenges ahead—high unemployment and infrastructure bottlenecks continue to stifle growth.
Many SMEs are still reeling from the aftermath of the COVID-19 pandemic, compounded by the challenges presented by load shedding, which has severely hindered productivity and drained financial resources. In light of these strains, businesses often turn to credit as a lifeline, perpetuating their debt issues.
To navigate these turbulent waters, Mtwentwe suggested that many creditors might be open to renegotiating terms if businesses are forthcoming about their struggles.
“It is imperative that you do not simply accept terms as they are presented. Instead, negotiate to restructure interest rates, repayment periods, and other conditions to enhance your cash flow. For instance, lengthening repayment periods can alleviate immediate financial pressure,” he advised.
Efficient Group chief economist Dawie Roodt echoed Mtwentwe’s concerns, attributing the struggles of SMEs to a combination of factors, including a lack of financial literacy and poor economic performance due to mismanagement in state-owned enterprises, high inflation, and elevated interest rates.
“This isn’t merely a small business issue; it’s an economic crisis that calls for urgent attention,” Roodt said.
Moreover, Roodt highlighted that the basic operating environment for SMEs remains unstable, with rampant crime, unreliable electricity, and inconsistent water supply constraining their operations.
“Without these fundamentals, businesses are burdened with the additional challenge of mitigating risks that should not have been theirs in the first place,” he said.
Waldo Krugell, an economist professor from North-West University, concurred that the struggles faced by SMEs were reflective of broader economic difficulties.
“The economy has faced considerable obstacles in the past year, with only a slight recovery evident in the fourth quarter. Sadly, for SMEs, there has been a historical lack of financial support from the government—efforts that are typically bolstered in tough times are limited by Treasury’s financial constraints,” Krugell said.
He urged for a reduction in red tape and a lower cost of doing business as key solutions for fostering growth in the SME sector.
BUSINESS REPORT