South African SMEs are entering a new phase of measured optimism, balancing improving local conditions with ongoing global uncertainty, according to Lula’s latest SME Pulse Report. The report points to improving affordability and operating conditions, alongside a clear shift in the SME landscape: from reactive survival towards more deliberate, growth-focused decision-making.

While energy stability and easing inflation have helped restore some predictability for businesses, escalating geopolitical tensions, oil price volatility and global economic uncertainty continue to create a highly unpredictable operating environment for small businesses.

“The story of SMEs in 2026 is no longer one of pure survival, but not yet one of full recovery either,” says Trevor Gosling, CEO of Lula. “What we’re seeing instead is measured optimism. Businesses are becoming more deliberate about where they deploy capital, which opportunities they pursue, and how they protect cash flow.”

Lula’s affordability data points to a steady improvement in SME affordability over the past 12 

months, suggesting a gradual stabilisation in trading conditions following prolonged pressure from elevated interest rates and infrastructure constraints.

The report notes that entrepreneurs are increasingly shifting from short-term survival strategies towards operational optimisation, supported by easing inflation, improving consumer activity and a lower-interest-rate environment at the time the report was compiled.

The broader economic backdrop had also begun to improve during the first quarter of 2026. Inflation eased from previous highs, interest rates began declining, and greater energy stability restored some predictability for businesses. Business confidence also reached its highest level in nearly five years.

Importantly, the report reflects the operating environment and SME sentiment at the time the data was compiled in early 2026. Since then, global market conditions have become increasingly volatile, reinforcing the importance of resilience, disciplined financial management and strategic focus for SMEs navigating the remainder of the year.

“SMEs are operating in a market that can change very quickly and often without warning,” says Gosling. “The external environment is shifting quickly again, which means businesses cannot afford to become complacent. The SMEs best positioned to navigate the months ahead will be those that protect cash flow, stay close to their numbers, and remain disciplined about where they invest.”

While the Pulse Report focuses primarily on Lula’s internal affordability, funding and operating environment insights, broader SME sentiment indicators also point to growing confidence among business owners.

Separate research conducted earlier this year (by News24 and Lula) among South African SMEs found that many businesses are increasingly prioritising skills development, operational efficiency and technology adoption as part of their growth strategies for 2026.

These findings suggest SMEs are becoming more intentional about where they invest time, money and resources, focusing on areas that can deliver sustainable long-term growth rather than short-term expansion.

The Pulse Report also points to an evolving mindset around business funding.

While many SME owners continue to rely on personal savings or credit to support business operations, there are signs that funding is increasingly being viewed as a strategic tool for growth rather than something reserved for periods of financial distress.

Businesses are increasingly using funding more proactively — to secure stock ahead of demand, invest in expansion, or strengthen operational capacity — rather than waiting for cash flow pressure to build.

“The future of SME finance will not simply be about access to capital,” says Gosling. “It will increasingly be about helping businesses make smarter decisions and giving them the confidence to act at the right time.”

While uncertainty is likely to remain a feature of the operating environment in the months ahead, the report suggests South African SMEs are entering the second half of 2026 in a stronger position than they were a year ago — albeit with a far more measured approach to growth.

“2026 is unlikely to reward businesses chasing every opportunity,” concludes Gosling. “The SMEs most likely to succeed will be those that remain clear on what drives value, stay focused, and execute consistently.”