Illustrative Image: Shop icon | Cracked wall (Image: Istock) | (By Daniella Lee Ming Yesca) “The story of SMEs in 2026 is no longer one of pure survival, but not yet one of full recovery either,” says Trevor Gosling, CEO of SME funding platform Lula. “What we’re seeing instead is measured optimism.”
His guarded optimism is reflected in Lula’s latest SME Pulse Report, which points to a 12-month improvement in affordability among its small business customers, supported by lower inflation, greater energy stability and an interest rate environment that had begun to ease at the time the report was compiled. “Businesses are becoming more deliberate about where they deploy capital, which opportunities they pursue, and how they protect cash flow,” says Gosling.
The change in mood is not limited to Lula’s data. Business Partners’ latest SME Confidence Index shows that 81% of SMEs were confident their businesses would grow over the next year, up two percentage points from the previous quarter, while confidence that the South African economy would support business growth rose to 69%. “Overall, the data presents a balanced picture,” says Jeremy Lang, managing director of Business Partners.
Stable electricity supply a relief driver
The biggest relief for many businesses has not come from festive season trading or sudden consumer exuberance, but from a more reliable electricity supply. According to Business Partners, 73.4% of SMEs said reduced load shedding had improved their operations. “The significant reduction in load shedding during 2025 enabled more predictable operating hours, reduced reliance on costly back-up power, and supported improved productivity,” says Lang.
By contrast, seasonal trading was far less of a windfall than the headline retail numbers suggested. Stats SA reported that retail sales reached R117.9-billion in November 2025, a 3.6% increase on the previous year, but 46.5% of SMEs surveyed by Business Partners said seasonal trading had no significant effect on performance, while 8.1% reported a negative effect. “Seasonal demand alone is not a guaranteed driver of meaningful performance and financial gain for SMEs,” says Lang.
Role of SMEs in the economy
This places renewed attention on the structural role small businesses are expected to play in South Africa’s economy. Ndumiso Zulu, CEO of group social investments at Old Mutual, argues that growth will not be unlocked only through large corporates, public infrastructure spending or policy announcements. “South Africa’s economic future will be built in township workshops, small factories, logistics businesses, digital start-ups, family-owned retailers, agro-processors and service enterprises fighting every day to survive and grow,” says Zulu.
The numbers support that argument. Zulu says micro, small and medium enterprises account for 80% of the workforce, employing more than 13 million South Africans, while more than 2.5 million micro-entrepreneurs power local communities. “These businesses are not peripheral to the economy but central to it,” he says. “They drive employment, support industrialisation, stimulate local demand, broaden the tax base and create pathways into the formal economy.”
The funding gap trap
Yet the same businesses are often caught in a funding trap. Large corporates remain well serviced by banks, while microfinance and informal lending channels have expanded at the bottom end of the market. In between sits the “missing middle”, made up of growth-oriented SMEs that are too large for microfinance but still viewed as too risky, too small or too operationally immature by conventional lenders. “This financing gap continues to constrain growth, suppress innovation and limit job creation at precisely the moment South Africa needs it most,” says Zulu.
Lula’s report identifies a similar shift in how business owners are thinking about capital. Funding is increasingly being viewed not only as a rescue tool in periods of distress, but as a way to buy stock ahead of demand, invest in expansion, hire people and strengthen operating capacity. “The future of SME finance will not simply be about access to capital,” says Gosling. “It will increasingly be about helping businesses make smarter decisions and giving them the confidence to act at the right time.”
The difficulty is that many entrepreneurs are not yet ready for formal funding when they approach lenders. Zulu says businesses may lack proper incorporation, tax compliance, realistic forecasts, audited financials, operating systems or a funding request that fits the mandate of the institution they are approaching. “The problem is not simply a shortage of capital,” he says. “It is a shortage of fit-for-purpose capital combined with insufficient ecosystem support.”
Non-financial support should be non-negotiable
That is why both funding and non-financial support are becoming more important. Business Partners found that the importance SMEs attach to access to finance rose to 87%, while the importance of SME-specific information also reached 87% and mentorship climbed to 86%. “SMEs continue to place strong emphasis on access to finance and support structures as key enablers of growth,” says Lang.
Zulu argues that this support should not be treated as a nice-to-have tacked on after funding has been approved. “Financial education, mentorship, governance support and operational advisory services should not be treated as secondary add-ons,” he says. “They are central to building investable businesses.” This means helping owners understand cash flow, tax, procurement, digitisation, compliance and growth planning long before the loan application lands on a credit committee’s desk.
There are signs that some funders are moving in that direction. Zulu points to the Old Mutual Enterprise and Supplier Development programme and the Masisizane Fund as examples of blended models that combine financial and non-financial support for majority black-owned enterprises. “Success should not be measured purely by the amount of money distributed,” he says. “It should be measured by how many businesses graduate into sustainable employers, exporters, suppliers and taxpayers.”
Lula’s Pulse Report also highlights the growing role of digital tools in small business finance, including data-led funding, faster access to working capital and platforms that help business owners anticipate cash flow pressure before it becomes a crisis. “The need is no longer just access to capital,” says Clinton Thomas, Lula’s head of product. “It’s the ability to anticipate and manage cash flow before it becomes a problem.”
The global turmoil impact
However, the improving local picture is not immune to global turbulence. Lula’s report cautions that conflict in the Middle East, oil price volatility, rand weakness and delays to further interest rate cuts could quickly filter into transport costs, inflation and household spending. “SMEs are operating in a market that can change very quickly and often without warning,” says Gosling.
For business owners, this means 2026 is unlikely to reward a scattergun approach to growth. The SMEs that make the most of improving conditions are likely to be those that keep a firm grip on cash flow, know their break-even points, separate business and personal finances and use funding for specific growth opportunities rather than as a late-stage plug for distress. “The SMEs best positioned to navigate the months ahead will be those that protect cash flow, stay close to their numbers and remain disciplined about where they invest,” says Gosling.
South Africa’s small business sector may be entering the second half of 2026 in better shape than it was a year ago, but the recovery remains fragile and the funding system still does not work well enough for the businesses most likely to create jobs. “If we are serious about unlocking South Africa’s growth engine, we must rethink SME finance for impact and make it smarter, more inclusive and truly transformative,” says Zulu. DM