Profitable but unprepared: Report exposes bankability gap in SA’s small businesses

South Africa's small business sector confronts a multifaceted challenge that extends beyond capital access: numerous thriving enterprises lack the requisite financial systems and planning to attract funding and foster growth. A new report by MSME development expert Fetola reveals that while most small businesses remain actively engaged in commerce, they often fall short in demonstrating their financial readiness to financial institutions and investors.

Titled the MSME Bankability Gap Report, this analysis, constructed using financial verification data from 177 growth-focused firms across all nine provinces, uncovers that an impressive 86.6% of these businesses maintain sustainable sales and a remarkable 76.8% are profitable. However, despite these positive indicators, only 34.7% of these enterprises produce reliable management reports, and an even smaller 13.3% can present a comprehensive 12-month budget.

Catherine Wijnberg, CEO of Fetola, elucidates this disparity as the "bankability gap" – the chasm between a business's operational viability and its capacity to convincingly prove its financial preparedness for expansion. "For far too long, the ecosystem has treated MSME growth as a funding issue alone," remarked Wijnberg. "Yet our extensive experience spanning over two decades indicates that capital rarely represents the sole barrier."

Cash-flow challenges are particularly pronounced, with half of the examined businesses citing cash-flow pressure despite their profitability. Financial planning emerges as a pivotal differentiator, with a staggering 90.9% of firms equipped with a 12-month budget maintaining financial stability for at least six months, compared to a mere 65.3% of those lacking such a plan.

Grant Prince, head of impact investing at Fetola, underscores that the "Missing Middle" represents not a mere capital gap, but rather a significant bankability gap. Many of these enterprises possess customers, generate revenue, and achieve profitability. Nevertheless, they frequently lack the necessary systems, financial information, and management disciplines that enable investors, lenders, or commercial partners to assess the business with confidence.

The report underscores that expanding access to finance must be complemented by practical support aimed at enhancing financial records, management accounts, budgeting, cash-flow forecasting, and internal controls. Without such comprehensive assistance, many commercially active MSMEs risk remaining excluded from growth opportunities despite their evident profitability.