The Influence of Financial Constraints on SME Performance: A Survey of SMEs’ Struggles in the Free State Province, South Africa
Sonnyboy France Nthwane
ABSTRACT
This study investigates the impact of financial constraints on business performance of small and medium-sized enterprises (SMEs) in the Free State Province, South Africa. While SMEs, through their multiple functions in the national economy, are a vehicle for sustainable development, they continue to struggle with limited access to funds, low managerial skills, and problems resulting from the inefficiency of institutions. Besides, the present literature is often biased in suggesting that funds are either public or private, thereby, not recognizing the existence of hybrid models that can be used to promote the sustainability of SMEs. The study concentrates on those financial challenges which have a major influence on the performance of SMEs. These are the issues of access to credit that is limited, lack of security, insufficient financial literacy, and the personal or family sources of finance that are at times used without any limitations. The authors have associated these constraints with the common socio-economic problems of unemployment, poverty, and inequality. By means of a quantitative approach supplemented by semi-structured interviews, this research determines the effects of financial constraints on the performance of SMEs. Apart from that, the study also deals with the role of government policies, financial institutions, and digitalization in the problem. The findings reveal that the issue of financing methods is still prevalent among SMEs in the townships and villages and these enterprises require management training and integrated support systems. The study provides a series of recommendations such as the financial system reform, the increased engagement between public
and private sectors, and strategies for making funds available to a larger number of people at a reasonable cost. These results, in fact, represent a major contribution to the argument that is still going on about the growth of small and medium enterprises, and they also indicate the potential solutions that could bring about the advancement of financial inclusion and the continuation of business in South Africa.
