In his 2026 State of the Nation Address, President Cyril Ramaphosa again placed small businesses at the centre of South Africa’s economic future, highlighting their role in job creation and inclusive growth. The government has acknowledged the barriers that constrain the sector, from complex by-laws and licensing requirements to broader regulatory and bureaucratic hurdles. In response, it has pledged to act.
Plans include refining the draft Business Licensing Bill to ensure it supports, rather than hinders, entrepreneurship and amending National Credit Act regulations to improve access to more affordable finance. There is also a renewed focus on easing entry for township and rural businesses. Government has also set aside more than R2.5 billion to support over 180 000 small and medium-sized enterprises (SMEs) and additional R1 billion in guarantees for 2026. Government’s ambition is that if every small business could employ just one more person, up to three million new jobs could be created in the economy.
South Africa’s SMEs may welcome the government’s latest support commitments, but the translation of these efforts into real impact remains to be seen. Small businesses face many structural challenges, including limited access to finance, high operating costs, infrastructure gaps, heavy compliance demands, and restricted market access. These are not new problems and they continue to make it difficult for many businesses to grow and create jobs. The government’s R2.5 billion SME funding commitment may appear significant, but spread across 180 000 businesses, the impact per business is modest, which raises the questions about scale and effectiveness.
For many entrepreneurs, the true test will not be the scale of the promises, but whether they are delivered in a way that meaningfully changes the conditions on the ground. If executed effectively, these interventions could be transformative; if not, they risk becoming another set of well-meaning intentions that fail to move the needle for South Africa’s small business sector.
SME optimism meets funding and skills gaps
Small businesses stand to benefit from higher registration and turnover thresholds in the 2026 Budget, rising from R1 million to R2.3 million. This shift should ease regulatory pressure and encourage job creation.
Despite these encouraging numbers, data from Absa’s Small Business Growth Index shows cautious optimism, with most SMEs expecting some growth in 2026. However, financial resilience remains weak with just 38% believing they could survive more than a year without support, while more than 70% expect to need additional funding in the near term – pointing to a funding gap that policy changes alone may not close.
Global trends reinforce this tension. The Global Entrepreneurship Monitor’s 2024/2025 report shows that while more people believe it is easier to start a business (rising from 29 of 50 economies in 2019 to 35 of 51 in 2024), fear of failure is also increasing. In 2024, 43 of 51 economies reported that at least two in five potential entrepreneurs would not act on good opportunities due to fear of failure, up from 34 of 50 in 2019.
Beyond financing, SMEs need stronger business management skills to survive and scale. Evidence from Absa research points to entrepreneurship education as a critical lever, improving financial management, cash-flow planning and decision-making.
Stronger support systems which combine funding, market access, training and networks remain essential for SMEs to convert opportunity into sustainable growth and substantial job creation.
When policy and lending models miss the mark
Access to finance remains one of the biggest barriers for South Africa’s small businesses, despite an increase in funding options. The SA MSME Access to Finance Report 2025 by Finfind and African Bank estimates a R350 billion funding gap, mainly driven by a mismatch between what lenders offer and what businesses need.
Finfind, which holds the country’s largest database of small business finance application data shows South Africa now has 315 active funders offering 605 products, up from 148 funders and 328 products in 2018. That is a 46.9% increase in funders and a 54.2% increase in products. However, capital is not reaching most small businesses, with 85% of funding applications coming from businesses with annual turnover below R1 million. Under the National Credit Act, these businesses are treated as consumers rather than commercial entities, limiting their access to appropriate business finance.
Funders often see these businesses as too risky for business loans due to low turnover and limited collateral, while also struggling to qualify for personal credit. Irregular income makes it difficult for lenders to assess the credit affordability and 50.9% of these owners have below-average credit scores, often as the result of using personal credit to keep their businesses afloat.
Thus, traditional lending models favour larger, more established businesses. The result is a cycle where limited access to finance weakens credit profiles, further reducing funding options.
Closing this gap will require more than capital. It demands a rethink of lending models and regulation to reflect the realities of South Africa’s smallest businesses. Although tax incentives and new funding models may improve access, their success will be measured by stronger market participation and higher business survival rates.
Key takeaways: R2.5 billion in SME support
Government’s R2.5 billion commitment to small businesses will be delivered through existing institutions, combining grants, loans, equity funding, and credit guarantees rather than a single fund. The commitment forms part of the government’s strategy for “freeing small businesses” to grow the economy and create jobs.
The Department of Small Business Development (DSBD), the National Youth Development Agency (NYDA) and the Small Enterprise Finance Agency (sefa) will lead implementation, targeting more than 180 000 SMEs, with a focus on women- and youth-led enterprises across sectors such as renewable energy, mining, agriculture, and manufacturing.
Intentional execution is key for the success of this project. If these interventions address long-standing barriers, SMEs could play a far greater role in inclusive growth, with the potential to create up to 3 million jobs, if each business hires one additional employee.
What small businesses need to know
Funding programmes
- Blended finance and equity: The support will be implemented through a combination of grants and loans (blended finance) to reduce the cost of capital for beneficiaries.
- Township and Rural Entrepreneurship Programme (TREP): The DSBD will continue supporting micro-enterprises in townships and rural areas, focusing on sectors such as bakeries, auto repair, butchery and clothing.
- Energy Bounce Back Loan Guarantee Scheme: R1 billion in guarantees will help SMEs invest in solar solutions, delivered through financial partners.
- Asset Assist Programme: Relaunched to provide machinery, equipment and raw materials, particularly for informal and previously excluded businesses.
- Sefa funding products: Sefa will expand blended finance offerings for start-ups and small firms.
Regulatory and structural support
Funding is paired with policy reform to ease business conditions:
- The VAT registration threshold will increase from R1 million to R2.3 million from 1 April 2026.
- Amendments to the National Credit Act aim to improve access to affordable finance.
- A target allocates 40% of public procurement to women-owned businesses.
Businesses are eligible to apply if they are 100% South African-owned, tax-compliant, and registered with the with Companies and Intellectual Property Commission (CIPC), with three months’ bank statements, annual financials and a business plan.
How to apply
Apply for funding through the DSBD, Sefa, or Seda websites.
by Denise Mhlanga
