There is a business owner somewhere in Gauteng right now sitting with a signed government tender on her desk, a supplier ready to deliver, and a bank letter politely explaining why her application was unsuccessful.
Across South Africa, thousands of small to medium-sized enterprises (SMEs) find themselves in exactly this position – commercially viable, contractually positioned, and completely shut out of the capital they need to execute. The industry has given this problem a name: the R350 billion funding gap.
But what if the narrative is wrong? What if the businesses being turned away are not rejected because they are unviable, but because they have not yet been able to translate their viability into the language a funder needs to see?
That is the argument Jedd Harris, Chief Strategy Officer at Sourcefin, puts forward, and it is one that the South African SME funding conversation is long overdue to deal with. Because until the distinction between businesses that are unfundable and those that are simply unprepared is made, capital will continue going into a system that was never designed to enable the people who need it most.
The Readiness Gap Nobody Talks About
The difference between “unfundable” and “unready” sounds faint. In reality, it changes everything.
Harris is direct about what unready actually looks like, and it’s not about the size of the deal or the sector the business operates in. It is about three consistent failure points: compliance gaps where tax is not in order, CIPC details are out of date, or a BEE certificate has lapsed; personal and business finances that are so tangled the bank statement is unreadable as a business document; and deals that are fundamentally misaligned – contracts where the margin is too thin, the timeline is wrong, or the supplier cannot realistically perform.
These are administrative and operational gaps that have been allowed to accumulate, often because nobody in the ecosystem ever pointed them out.
“A meaningful share of the SMEs that cannot access credit are not unfundable because they are unviable,” Harris explains. “They are unfundable because they have not yet been able to translate their viability into the language a funder needs to see – tax compliance, clean banking history, structured financials, a verifiable end buyer, supply chain credibility.”
The gap widens, he argues, because the system is designed to deploy capital but carries no responsibility to build readiness. “Banks will not fund unready businesses. Government grants do not always teach readiness. And the business owner often does not know what they do not know. That is the awareness gap that precedes the access gap, and it is where the real work is.”
How Traditional Lending Gets It Wrong
When an SME founder applies for a bank loan, the assessment that follows is almost always built around the same two pillars: collateral and credit history. Both pillars look backwards and ask the same question: what has the business already acquired that we can hold against the loan?
For a generation of first-generation entrepreneurs who are commercially capable but asset-light, that question is disqualifying before the conversation has begun. The result is an exclusionary landscape that filters out viable businesses because they do not own assets.
Harris is critical of what this actually does. “The point that gets missed in this debate is that collateral does not actually reduce risk; it just transfers the consequence of failure to the borrower. That is a different conversation from de-risking the underlying transaction.”
It’s an important distinction. A bank holding a bond over a business owner’s home has not made the underlying deal safer. It has only ensured that if the deal fails, someone else bears the cost.
The Real Cost of Getting Funding Too Late
The cost of the funding gap currently only measures the applications declined. Much of it is invisible – the contract not pursued, the supplier discount missed, or the order delivered late. By the time many SMEs reach a funder, the damage is already compounding.
Harris describes what this looks like in practice and reality. “By the time an SME comes to us in crisis, the deal has often already started bleeding. The supplier is impatient. The end buyer is wondering why the delivery has slipped. The owner’s negotiating leverage has collapsed.”
The cost of late funding is (almost) always higher than the cost of timely funding, in pricing, operational pressure and the opportunities that disappear while the business is focused on survival rather than growth.
The solution Harris offers is simple yet significant. “We should stop calling funding a rescue mechanism. It is an enablement tool, and it works best when it is part of the plan, not the plan B.”
Early intervention changes both sides of the equation. It allows the funder to structure properly, providing a facility rather than a one-off, with the drawdown matched to delivery. On the other hand, the SME can move from a defensive position to an offensive one, taking on the next contract knowing that cash flow is already solved.
Where Government and DFI Capital Fall Short
Government and development finance institution (DFI) capital is not absent from the SME funding conversation. The programmes exist. The budgets are allocated. The problem, Harris argues, is in how success is measured.
“The mandate is often disbursement-driven – allocate the budget – rather than outcome-driven. That creates a system where the capital reaches the businesses that are best at navigating the application process, not necessarily the businesses where the rand will produce the most economic activity,” he says.
The consequences of this are visible in repayment data that gets misinterpreted. When funded businesses struggle to meet deliverables, the narrative becomes one of SMEs that fail to repay. Harris pushes back on this framing. “Capital arrives, but the businesses receiving it have not been prepared to deploy it. There is limited follow-through on supply chain support, project management, governance, or financial discipline. The result is funded businesses that struggle to deliver, which then becomes a story about ‘SMMEs that fail to repay’ – when actually it was a story about a system that funded readiness it had not built.”
The solution, he suggests, is not more capital deployed in isolation. It is blended structures, public capital that subsidises the readiness work alongside commercial capital that prices the deal honestly. Sourcefin’s partnerships with Gauteng Enterprise Propeller, the City of Johannesburg, and the Black Management Forum represent early attempts to operationalise that model.
Why Alternative Lenders are Changing the Narrative
The growth of alternative lenders like Sourcefin shifts the funding conversation for SMEs who fall outside the traditional banking lens. Where banks assess backwards, Sourcefin assess forwards.
“Banks look backwards at credit history and collateral. We look forward to the opportunity,” Harris explains. “If the tender or invoice succeeds, can the client pay us back? That single shift opens the door for a lot of businesses that are revenue-generating but ‘unfundable’ by traditional standards.”
Sourcefin has deployed over R3 billion into more than 1000 SMEs on the back of that single shift in perspective.
The model assesses risk across three components. The first is client trust, not a perfect credit score, but a reading of whether the person will engage honestly when the deal hits a snag. The second is supplier delivery capability, assessed through a database of more than 2000 pre-vetted suppliers and an in-house supply chain team that verifies and, where necessary, re-sources. The third is the end-buyer’s ability to pay, especially in the public-sector where payment timelines vary significantly across departments and state-owned entities.
Harris does not overclaim. Cash flow-based lending is not less risky than traditional lending; it’s differently risky. The difference is that risk is managed through engagement with the deal, not through asset capture after it fails.
What Genuinely Transformative Funding Looks Like
The fintech transformation promised to transform credit access through alternative data. Harris suggests that the reality has been more modest. Most alternative credit assessments still lean on bank statement grouping, turnover figures, and credit bureau pulls – similar inputs that banks have always used, delivered through a faster pipe. Valuable for speed. But not a change in what is being assessed.
“We have spent a decade trying to know SMEs more deeply,” he says. “We have spent comparatively little effort knowing their counterparties.”
That reframes points toward what genuinely transformative data would look like. It would include end-buyer payment behaviour – knowing which government departments and SOEs pay within 30 days versus 120, so deals can be priced and structured accordingly. It would include supply chain reliability data, tracking which suppliers consistently deliver on spec and on time. Also, it would include tender-award pattern data that links contract awards to actual deliverables and payment outcomes. Lastly, it would include behavioural data from the SME itself, not just bank flows, but how the business interacts with its accounting software and the consistency of its record-keeping over time.
None of this requires invasive data collection. Most of it requires public-sector willingness to share the data and insights it already holds. The prize is not knowing the borrower better, it’s in knowing the deal better.
Structuring products around the actual cash flow rhythm of a business, rather than the lender’s administrative convenience, is equally important.
“Every funding product should be stress-tested against a worst-case month for that business, not against the average. The business that survives the bad month is the business that grows in the good one,” says Harris.
Conclusion: The Infrastructure Nobody is Building
The funding gap shrinks when more SMEs are equipped to absorb capital productively. That is the argument this article builds toward, and it’s the argument Harris puts at the centre of what Sourcefin does.
The reasons it has not happened at a large scale are not a mystery. Readiness is unglamorous. It’s difficult to measure, and it sits in nobody’s primary mandate. Funders are measured on deployment, government is measured on disbursement, business organisations are measured on training delivered, not on businesses funded as a result. Nobody owns the integrated pipeline from readiness to capital to delivery.
Harris’s challenge to the industry is framed as an infrastructure argument – deliberately, because infrastructure is something South Africa understands the value of investing in.
“Readiness is infrastructure. We invest in roads and ports because they enable economic activity. We should be investing the same way in the unglamorous administrative, financial, and operational capability that enables SMMEs to deliver on the opportunities they are already winning,” he concludes.
The SME Funding Summit is exactly the kind of gathering where that argument needs to be made and heard. Because the businesses that will drive South Africa’s next decade of economic growth are not waiting to be invented. They are already here, already winning contracts, and still being told they do not qualify.
The question the summit must answer is not how to find more capital. It is how to build the readiness layer that makes the capital we already have work harder.
As Harris puts it: “We cannot always lend, but we must always enable.”