What alternative funders really want from SMEs

The rejection email arrives on a Tuesday morning, brief and devastating. Another South African business owner stares at their screen, bewildered. The revenue figures were strong, the business plan polished, and the need genuine. So why did the funding application fail?

The answer lies in a fundamental misunderstanding that’s costing countless SMEs their dreams of growth. “Revenue is important, but affordability and repayment ability are far more critical in funding assessments,” reveals Chantelle Honiball, Credit Manager at Lula, a leading alternative SME banking and funding provider.

Across South Africa, entrepreneurs are approaching funding applications with outdated playbooks, focusing on impressive turnover figures while overlooking the factors that determine approval.

The invisible saboteur

This misunderstanding is more pronounced in personal credit. Sipho Tshabangu, Junior Credit Analyst at Lula, encounters this blind spot daily. “Many entrepreneurs don’t realise that their personal credit profile significantly affects their business funding applications,” he explains.

The small business owner who meticulously manages company finances while neglecting personal store account payments doesn’t realise these seemingly separate worlds have collided. That overdue clothing account isn’t just a personal inconvenience; it’s become a business barrier.

Inside the assessment process

Inambao Mwimba, Senior Credit Analyst at Lula, offers rare insight into funding application decision-making. “Our success aligns with your success. We’re not looking to set businesses up for failure.”

Rather than rubber-stamping high-revenue applications, responsible lenders examine cash flow patterns, credit utilisation, and realistic repayment capacity. They’re looking for evidence of clear financial goals backed by budget discipline. Revenue matters, but it’s merely one instrument in a complex assessment orchestra.

The cash flow conundrum

Honiball identifies the core challenge facing South African SMEs: “Cash flow constraints are often caused by timing differences between when you pay suppliers and when customers pay you.”

Suppliers demand favourable payment terms while customers negotiate extended periods. The business sits in the middle, managing the gap between outgoing obligations and incoming revenue. When this gap widens, the squeeze intensifies.

When rejection breeds desperation

The response to funding rejection often worsens the original problem. Kamogelo Lekalakala, Credit Training Specialist at Lula, has observed this pattern repeatedly. Businesses receive rejection notices and immediately pivot to alternative lenders, firing off multiple applications.

“Multiple funding applications in a short period [can] negatively impact credit scores,” Lekalakala warns. Each rejection followed by another immediate application creates a deteriorating spiral.

The alternative requires patience and strategy. Treating rejection as intelligence rather than failure opens opportunities for genuine improvement.

The mindset shift

Perhaps the most significant difference between successful and unsuccessful applications lies in the fundamental mindset. Honiball describes the contrast between emergency funding requests and strategic growth capital applications. “Use credit strategically for growth. Bridge payment gaps, take advantage of supplier discounts, or invest in opportunities that generate returns.”

Emergency funding signals distress and reactive management. Strategic growth capital demonstrates foresight and proactive leadership. Lenders readily distinguish between these approaches.

Credit specialists emphasise preparation as the foundation of successful applications, yet many business owners approach funding as urgent, last-minute necessities.

Effective preparation involves maintaining healthy credit scores for both personal and business profiles, implementing proactive cash flow management, and establishing clear financial goals. Most importantly, it demands treating funding access as an ongoing business capability rather than an emergency response.

The broader economic story

SMEs drive job creation, innovation, and economic growth across South Africa, contributing significantly to GDP and tax revenue while helping reduce inequality. Yet accessing funding requires navigating systems designed around different assumptions.

“We want to provide funding solutions that genuinely address operational cash flow gaps and support growth,” Lula’s team explains. Every SME that fails to access appropriate funding represents economic potential unrealised.

The path forward

The funding landscape offers genuine opportunities for businesses that understand assessment criteria and approach applications strategically. Success requires abandoning outdated assumptions about what lenders value by embracing a sophisticated understanding of how funding decisions are made.

For businesses willing to understand what lenders really want from SMEs, that Tuesday morning rejection email might be the beginning of a better approach.

This article was produced by the Advertising and Content Marketing team of Media24 for Lula.