Access to finance is widely acknowledged as a critical determinant of business growth and sustainability (Beck & Demirguc-Kunt 2006; Organization for Economic Co-operation and Development [OECD] 2017). However, small, medium and micro enterprises (SMMEs) in South Africa continue to face persistent challenges in securing formal financing because of structural deficiencies, regulatory constraints and institutional biases within the financial sector. These barriers limit SMMEs’ capacity to innovate and contribute effectively to economic development (Jordaan & Coetzee 2021; Maneesha 2020). Despite their recognised role in job creation and poverty alleviation, the sector continues to underperform, with failure rates amongst the highest globally (Ramsuraj 2023; Yahaya & Nadarajah 2023). Long–standing evidence documents South Africa’s entrepreneurship constraints and macro–level headwinds, including poverty and inequality, which depress formation and growth (Foxcroft et al. 2003; Chibba & Luiz, 2011).

Although South Africa possesses a relatively advanced banking system compared to other emerging economies, access to credit remains a systemic issue (Senbet 2024). Government interventions, including training and financial support programmes, have yielded limited success, as reflected in the country’s persistently high unemployment rate of 32.9% (Trading Economics 2024). Recent studies attribute financial exclusion to information asymmetry and stringent collateral requirements, which disproportionately disadvantage historically marginalised groups (Mugano 2024; Olarewaju & Msomi 2021). Across contexts, SMEs face information, collateral, and cost–of–capital barriers; public equity also remains difficult to access at SME scale (Chowdhury & Alam 2017; Anton & Bostan 2017; Olawale & Garwe 2010).

Global Entrepreneurship Monitor (GEM) reports indicate that financial constraints account for approximately 28% of business closures in South Africa (GEM 2017). Moreover, the estimated credit gap in sub-Saharan Africa – between US$80 and US$100 billion – underscores the magnitude of the challenge (Senbet 2024). While OECD countries systematically track small and medium-sized enterprises (SMEs) financing indicators such as interest rates, collateral requirements and loan rejection rates, South Africa lacks comprehensive, publicly accessible data, thereby impeding evidence-based policy development (Enaifoghe & Durokifa 2024; OECD 2017).

Empirical evidence confirms that SMMEs with access to formal financing experience accelerated growth and job creation (Beck & Demirguc-Kunt 2006; Mugano 2024). Yet, only 2% of new SMMEs in South Africa secure bank funding, with most relying on personal savings or informal networks (Olarewaju & Msomi 2021). This reliance reflects structural inefficiencies and highlights the urgent need for adaptive credit assessment frameworks and alternative financing models. Evidence links sustainability practices to resilience and long–run performance, supporting capability–building recommendations (Ortiz–de–Mandojana & Bansal 2016). Limited access to finance not only constrains operational stability but also undermines resilience and competitiveness, reinforcing the necessity for targeted interventions to close the financing gap (De Blick, Paeleman & Laveren 2023; Yahaya & Nadarajah 2023).

Consequently, scholars and practitioners have explored strategies to enhance SMME financial sustainability (Ndjwili-Potele 2013; Tuffour, Amoako & Amartey 2020). SMEs contribute to development and poverty reduction, but realising these gains hinges on finance bundled with structured support (Maksimov, Wang & Luo 2017; Iheanachor & Etim 2022). Despite these efforts, SMMEs in South Africa continue to fall short of expectations for employment generation and poverty reduction, with failure rates ranking amongst the highest globally (Lekhanya 2016). Estrin et al. (2019) emphasise that support for entrepreneurship and SMME development in transition economies remains less robust than in other emerging markets. Understanding the factors influencing financial sustainability is therefore essential. This study seeks to identify financing sources utilised by SMMEs in the Northern Cape and provide empirical insights into survival determinants, addressing a notable gap in regional research.

Persistent inequality further compounds these challenges. Oxfam (2018) reports that the top 10% of South Africans control approximately 50% of the national income, while the lowest 50% share only 12%. Similarly, the World Bank (2018) notes that the top 10% hold 71% of household wealth, leaving the bottom 60% with just 7%. Nearly half of the population is chronically poor, with 30.4 million South Africans living below the poverty line in 2015 (Statistics South Africa 2017). These conditions underscore the urgency of fostering inclusive economic growth through SMME development. In response, post-1994 policies such as Broad-Based Black Economic Empowerment (BBBEE) were introduced to promote equity and strengthen SMMEs, primarily through preferential procurement. Transformation policy and the NDR context shape enterprise dynamics and the efficacy of BEE–linked instruments (Mosala, Venter & Bain 2017).

Access to finance remains a critical constraint on SMME sustainability (Ye & Kulathunga 2019).

While South Africa’s financial sector is comparatively well-developed, SMMEs encounter significant obstacles in obtaining external funding, including high collateral requirements and risk-averse lending practices (Khan & Anuar 2018; Schmidt et al. 2017). Many SMMEs rely on family and friends for initial capital (Stensrud 2017), but as businesses grow, they require greater financial resources to innovate and remain competitive (Burlea-Schiopoiu & Mihai 2019).

Limited access to finance not only restricts expansion but also impedes the adoption of efficiency-enhancing strategies (De Blick et al. 2023). Recent research highlights that improving financial access can enhance competitiveness, foster innovation and support sustainable growth (Adegboye & Iweriebor 2018; Brixiová, Kangoye & Yogo 2020; Mugano 2024).

The control variables in this study are essential for clarifying the relationship between funding access and SME growth. Firm age refers to the number of years a business has been operational; older firms often have more established networks and resources, which can enhance their ability to secure financing. The sector involves the classification of the industry, such as agriculture, manufacturing or retail, as different sectors may have varying access to financing and growth potential. Firm size is measured by the number of employees or annual turnover, with larger firms typically enjoying better financial resource access compared to smaller ones. The ownership type, which denotes legal structures like sole proprietorships or partnerships, can also influence funding access and regulatory requirements.

Location plays a critical role as well, distinguishing between urban and rural settings; geographic area may impact accessibility to financial institutions. Prior financing encompasses the history of previously received funding, such as loans or grants, which can significantly affect a firm’s growth trajectory. The BEE Status indicates compliance with BEE initiatives, which may enhance or restrict eligibility for specific funding options. Additionally, the owner gender can influence perceptions and access to financial resources, while the owner education level highlights the highest qualification attained, which may correlate with better financial management skills.

Credit history refers to the firm’s credit score or history, impacting loan eligibility and access to financing. Economic conditions, including local economic indicators like unemployment rates and regional GDP growth, can also influence the performance of businesses and their funding opportunities. Lastly, the business plan quality is crucial; the completeness and robustness of the business plan presented to potential funders can affect approval rates for funding. Including these control variables in the analysis helps mitigate bias and provides a clearer understanding of the dynamics between funding access and the growth of small and medium enterprises.

Participants were requested to specify their gender so that we could ascertain whether there were gender balances in subsectors of the economy. Table 2 reports that 62% of participants were male and 38% female. Regarding age, the majority of participants (44%) were aged 50–59 years, and 36% reported being aged 40–49 years. More than 90% of the interviewees were citizens of South Africa.

The responses to Question 3.1 (see Table 3) indicate that lack of access to finance was the biggest problem and/or constraint that prevented businesses from achieving their business goals. In total, 70% of the respondents confirmed that insufficient access to financial resources represented a critical obstacle that could hinder the attainment of business objectives. Without adequate funding, enterprises struggled to invest in growth opportunities, and they could not enhance operational efficiency or navigate market fluctuations. Financial constraints limited their ability to innovate, scale up operations and sustain long-term success, and ultimately stood in the way of entrepreneurial aspirations and economic advancement. These patterns echo long–standing evidence documenting South Africa’s entrepreneurship constraints and macro–level headwinds–including poverty and inequality–that depress enterprise formation and growth (Foxcroft et al. 2003; Chibba & Luiz 2011). Across contexts, SMEs face information, collateral and cost–of–capital barriers, and public equity remains difficult to access at SME scale (Chowdhury & Alam 2017; Anton & Bostan 2017; Olawale & Garwe 2010), supporting the pattern observed in our data.

In response to Question 3.2 (Table 3), only 52% of respondents reported that their companies had expanded their labour force, while 46% reported that their labour force had either remained stable or decreased, primarily because of difficult economic conditions.

Question 3.3 (Table 3) enquired whether businesses had experienced an increase in their year-on-year turnover over the past 5 years, and 72% of participants affirmed that they had, while 26% reported that the turnover of their businesses had not increased over the last 5 years.

More than a third of owners or managers (36%) indicated that their chosen form of legal entity was sole proprietorship, while 30% operated as private companies (Pty Ltd). Additionally, 16% of respondents continued to use Close Corporations (CCs) or owned multiple businesses, some of which were CCs. This is notable because South Africa discontinued the registration of new CCs after the introduction of the Companies Act 2008, which streamlined business registration under Private Companies (Pty Ltd). However, previously registered CCs remain legally operational, which explains their continued use amongst some entrepreneurs.

Table 4 illustrates the sources of funding used by SMMEs at the startup phase. A majority (54%) of businesses relied on a combination of personal, family and commercial bank financing, while only 2% secured full bank funding.

This supports the findings of Olarewaju and Msomi (2021), who found that only 2% of new SMMEs in South Africa had successfully secured financial support from banks. Additionally, 4% obtained funding from development finance institutions such as the SEFA and the National Empowerment Fund (NEF), while 16% relied on personal savings or informal funding sources, such as family or friends, to establish and sustain their businesses.

In this study, 54% of respondents utilised a combination of own or family or friends or commercial bank funding. Given that all businesses in the sample had been in existence for at least 5 years before the research, this suggests that these SMMEs were able to demonstrate positive year-on-year turnover over that period.

Table 5 presents insights into business planning practices among SMME owners. The results show that only 36% of respondents prepared an initial business plan, whereas a considerably larger proportion (64%) began operating without one. Furthermore, among those who did prepare a business plan, an even smaller share (18%) relied on a professional service, while the majority (82%) drafted their plans independently. These findings suggest that most SMMEs enter the market without formal planning structures, which may influence long–term strategic clarity, access to finance, and overall business sustainability. Table 6 illustrates perceptions of SMME owners regarding the effectiveness of BEE programmes in supporting business growth. Table 6 reflects expectations about whether BEE initiatives could contribute to expansion, with 70% of respondents doubtful about their potential benefits. Table 6 examines experienced impact, revealing that 62% did not perceive any added value from BEE for their businesses, while 12% found it beneficial. Notably, 26% of respondents already operated as BEE-compliant entities, suggesting that their experiences may differ from non-beneficiaries. Transformation policy and the NDR context shape enterprise dynamics and the efficacy of BEE–linked instruments (Mosala et al. 2017).

This section presents results aligned with the study’s hypotheses and discusses their implications through the lens of Credit Rationing Theory and RBV. Validity and reliability of measures are also addressed.

This article highlighted the significant financial constraints faced by SMMEs in the Northern Cape, emphasising their reliance on alternative funding sources because of limited access to commercial bank financing. The findings confirm that traditional lending institutions view SMMEs as high-risk investments, resulting in minimal startup funding opportunities. While BEE programmes aim to support SMME growth, their actual impact on turnover expansion and labour force increases remains inconclusive.

The study’s inferential analysis provides empirical evidence that access to finance is a statistically significant determinant of SMME growth. While descriptive statistics confirmed widespread reliance on informal funding, regression and association tests substantiated that SMMEs with formal funding sources had higher probabilities of experiencing turnover increases. The lack of statistical association between BEE support and growth metrics suggests a re-evaluation of these policies is warranted.

Given the pivotal role SMMEs play in economic development, policy interventions must prioritise transparent financial accessibility mechanisms. This includes streamlining loan approval processes, reducing collateral requirements, and expanding SMME-specific funding programmes.

Encouraging financial literacy initiatives and adaptive credit scoring models could enhance the ability of SMMEs to secure funding and sustain operations.

To advance SMME development in South Africa, collaboration between government, financial institutions, and private investors is essential. A shift toward inclusive financing models, such as venture capital, fintech solutions, and sector-based funding incentives, could mitigate existing challenges. Additionally, data transparency on SMME loan rejection rates and financing terms must be improved to guide future policy decisions.

Ultimately, addressing financial access barriers requires a coordinated policy approach, integrating financial institutions, regulatory bodies and SMME stakeholders to create a sustainable ecosystem for small business growth and innovation. Future research should assess longitudinal trends in SMME financing, exploring how evolving policies and economic shifts shape access to capital over time.