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OP-ED: Loan Funding Not Always The Answer For SMMEs

By Dylan Baxter, head of sales at Raizcorp

Right now, there’s a bit of a debate in big business circles and the broader industry about whether grants or loan funding are what SMMEs need in the current economic climate. There’s no simple answer but, at Raizcorp, we’ve always believed that corporates should think carefully before providing funding as it may not necessarily be the best option for either the lender or the SMME in the long run.

We’re seeing a perception among some corporates that giving small businesses money during this time of the COVID-19 pandemic will make many of their problems go away. Certainly, the money can be used to pay overheads like salaries, debt and rent. But it can only go so far. Loans and grants have their place but, if done without due diligence, are not prudent and could land the SMME in an even deeper hole.

A key challenge with unstructured loans and grants is that the lender doesn’t always know where the money is going. In some cases, it could even end up being used to fund lifestyle costs. The key, as with any normal business loan, is a thorough understanding of the beneficiary business. What will the money be used for? Does the business have sufficient sales to support the acquisition of equipment and resources? What are the associated increases in overheads? And will they have the ability to service the loan?

The other issue is that big businesses generally expect the beneficiary to pay back the loans – even in the case of low-interest or soft loans. If you haven’t checked their books to see if they can pay it back, the chances are that you’re not going to see that money again.

Loans and grants aren’t the only game in town when it comes to companies boosting their B-BBEE scorecards through ESD initiatives. They can also provide critical equipment, access to markets by making the small business part of their supply chain, or put the beneficiary through a business development support programme.

Ask any entrepreneur what they need and they’re likely to tell you they need funding. But nine times out of ten, what they actually need is a compelling product or service to sell, the ability to sell it, a market that is willing to purchase it and the confidence that, if they sell, they are selling at a profit. In addition, and even more critically, they need the right systems and processes to scale the business sustainably and profitably. If they don’t have the ability to grow the business correctly, both the lender and the beneficiary could end up in a funding black hole.

Money provided at the right time can absolutely grow a small business. But given at the wrong time can close their doors. Even a grant that doesn’t need to be paid back can still have a disastrous 

About Dylan Baxter

Dylan Baxter is the head of sales at  Raizcorp. His extensive sales career spans over two decades and he has also experienced his own entrepreneurial journey during which he started and ran his own successful retail business.

effect on the business. The corporate or lender thinks they’re doing the beneficiary a favour but they’re actually doing them an injustice. And that’s in nobody’s interests right now …

About Raizcorp

Celebrating its 20th year in 2020, Raizcorp is, according to The Economist, the only genuine incubator in Africa, which provides full service enterprise and supplier development programmes that guide entrepreneurs to profitability. Raizcorp has created “Prosperation™” – its own unique, world-renowned model of business incubation. Founded in 2000, Raizcorp has become Africa’s premier business incubator model. For more information, visit

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