Resilient SMEs will thrive in 2023

by Garth Rossiter: Chief Risk Officer at Lulalend.
The past year has not held much for the SME sector to celebrate, but I expect 2023 to be a year of growth and recovery.

2022 saw the end of COVID-19-related restrictions but, at the same time, we also experienced some of the worst levels of load shedding ever. It has been a very difficult year for a sector that is widely considered to be the engine driving the SA economy. It is the resilience of SME owners that kept the doors open and the tills ringing.

Higher inflation and increasing interest rates also meant that it was becoming increasingly difficult to have any kind of disposable income with which to invest or grow a small business. SMEs struggled to access the lifeblood that keeps them going – cash flow. This will be a determining factor to watch in 2023 too.

Perhaps the one thing that makes me optimistic about the year ahead, is how well SMEs have managed to recover and rebuild from the challenges of the past three years.

We saw how they demonstrated an innate ability to pivot, change and adapt to the ‘perfect storm’ they had to weather. Over the past 12 months, we saw almost every foreseeable bit of bad news being thrown at them and somehow their resilience carried them through. This is a characteristic to encourage and nurture in 2023

Access to funding will remain a pivotal element that determines one’s successful operation in 2023. Small businesses need to have fast access to lines of funding. If they want to tap into a changing market trend, they need to be able to acquire the inventory they need quickly. Time is a luxury they don’t have.

How do we turn things around in 2023? Some of the solutions and answers are perhaps more realistic and attainable than others.

Loadshedding needs to come to an end

It would be remiss not to mention the dire need for a reliable source of power. The SME sector needs load shedding to come to an end. In a world that is moving away from handling cash, it is nearly impossible for SMEs to process payments and operate when there are constant power disruptions.

Cash flow will be crucial in 2023

Small businesses also need quicker access to funding and cash flow in the year ahead and they need service providers that understand this. Banks are good for many things, but when it comes to a speedy turnaround time for a funding application then you are looking in the wrong place. SMEs need quick access to cash to get them over short-term hurdles, to get them the contracts they need to survive, as well as access to inventory.

In terms of growth cycles, I think we hit the bottom in 2022 and we will now start seeing bigger growth and expansion in the sector. When you’ve hit the bottom, there is only one way and that is up. But to tap into this growth you need funding, and you need fast decisions.

Inflation might have peaked and is expected to come down in 2023, something that is also potentially positive news for the sector. I expect we will see less aggressive interest rate increases or even a stabilisation of interest rates.

On a global level, there is reason to be pessimistic. If the US goes into recession as speculated, this would have a knock-on effect here at home too. Unfolding events in Ukraine and Russia will equally be felt locally.

On the SA front, I am perhaps a bit more optimistic.

I don’t think there is much more that can be thrown at local SMEs that they haven’t experienced yet. We saw doom and gloom last year, but this year we will see the start of a recovery. We can see the customers that are getting funding from us are all building and preparing for the growth that is anticipated in 2023. They appear to be more confident about the future and its prospects.

One should also acknowledge the important role that political stability and policy play in creating an environment that encourages economic growth. Whether it is events on a global stage or here at home, investors are watching; and nervous markets don’t grow. We need to be attracting foreign capital, not scaring it off. This is a real change factor to watch in 2023.

Resilient businesses prevail and pivot

Businesses are trying to be resilient. A lot of them are in the renewables sector where they have completely pivoted to find new opportunities and tap into the gaps where Eskom is failing. This is great to see as it speaks to the dynamic capabilities of SMEs in South Africa. It also shows that people want to grow the economy. Jobs numbers have also recently improved, which is indicative of a growing economy.

I also see an increasing focus on “doing good” for the planet. While it varies in importance with economic pressure, consumers continue to make ethical purchasing decisions based on concerns over sustainability and the best interest of the planet. This trend ties in with our fastest-growing market sector in terms of funding allocation. SMEs that are playing in the renewables space are ramping up to service consumer needs at pace.

Nimble and responsive suppliers of cash flow will see greater success in 2023. Small businesses don’t have the luxury of time to wait for funding decisions to be made. Those that understand they can get access to funding when they need it most, will benefit from alternative lenders who can provide this with ease.

I think more SME owners will realise that banks are no longer their only source of funding in 2023. Banks will always have their space to fill but there are other players who will stand out and stand up to their needs with outstanding flexibility, tailor-made service, and an open door to available funds.

Useful resources:
As South Africa's first online provider of business finance, we provide short-term, unsecured business funding of up to R2 million to SMEs who have been in operation for at least one year and are making a monthly turnover of R40 000.
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