Rising costs and weak credit quality to shape SME planning in 2026

South African SMEs are likely to face another year of rising operational costs, uncertain supply chains and persistent cash flow strain. SME services provider Lula says businesses should shift from short-term crisis management to structured planning as they prepare for 2026.

3 Dec 2025

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Garth Rossiter, chief risk officer at Lula, says the biggest challenge is the lack of predictability across input costs and the external pressures that affect cash flow and access to finance.

Energy costs: predictability over volatility

Electricity remains one of the highest operational costs for SMEs. Scheduled tariff increases for Eskom, including the 5.36% rise for 2026/27, will continue to erode profitability.

Rossiter says backup power is no longer optional for sectors such as small manufacturers and hospitality. He notes that the current period of lower load shedding has created a temporary surplus in the market, reducing equipment prices and offering a short window for investment. Converting variable power costs into a predictable, fixed expense provides stability and operational certainty.

An alternative is for businesses to adjust product pricing according to energy input costs. For example, a bakery could calculate electricity costs per loaf. Rossiter warns that while this protects margins, it risks undermining competitive pricing.

Logistics and stock: the move to a just-in-case model

Port delays in Durban and Cape Town have highlighted ongoing supply chain risks. Rossiter says SMEs may need to replace just-in-time stock management with a just-in-case approach, keeping a 10 to 15% buffer of high-demand products.

Although the additional stockholding affects working capital, he says it prevents lost sales during disruptions.

He suggests that SMEs consider sourcing from local suppliers where possible and negotiating longer payment terms, such as 60 days, to ease cash flow pressure.

Credit quality and funding costs

Poor credit scores remain a significant cost driver for SMEs. A lower score increases the risk premium charged by lenders, pushing up borrowing costs. For companies operating on thin margins, Rossiter says the extra interest expense can be damaging.

Businesses with weak credit profiles may also qualify for smaller funding amounts, limiting their ability to purchase stock or scale during peak trading periods. Rossiter advises SMEs to review their credit histories and resolve outstanding issues to access more affordable finance in 2026.