Recent survey paints worrying picture

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According to a survey done of 2300 business owners done by the South African SME Finance Association (SASFA) and assimilated by HeavyChef, only 15% of SMEs have support and 75% will fail if lockdown runs past 30 June.

“Small and medium enterprises (SMEs) are the lifeblood of our South African economy, but with the extreme disruption to their businesses, most will suffer huge losses, retrench staff and many will not make it through the lockdowns. Even though government and some wealthy South African families have made funding available to SME business owners, this was far too little and often did not reach the owners who needed it,” said Karl Westvig, CEO at Retail Capital.

Of the businesses surveyed only a fraction had any support. Only 47% of business owners applied for relief from government or financial institutions, because many of the remaining 53% did not believe they would qualify. But even amongst the 47% who did apply, only 32% were successful. This means that a mere 15% of SMEs with a turnover of below R10m per annum, had any support.

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Westvig explained that the R200bn Loan Guarantee Scheme from the National Treasury supports the formal banks to lend to SMEs with a turnover of up to R300m per annum. “However, banks follow the traditional credit-vetting criteria, which often requires surety and security. It is also expensive and difficult to underwrite funding for small SMEs with turnovers of less than R10m per annum. As such, the bulk of this support is going to medium-sized businesses who can provide security and have longer track records.”

Clearly, 85% of SMEs are being ignored when it comes to acquiring support, Westvig continued. “The best-placed funders for these businesses are the non-bank lenders who have cashflow-based lending models and use risk scorecards and data-driven approaches, not collateral-based models.”

Karl Westvig, CEO, Retail Capital
Karl Westvig, CEO, Retail Capital

As such, the lack of government support for non-bank lenders leaves a gap in the system.  These lenders include members of SASFA and other non-bank lenders, including Retail Capital, Merchant Capital, Spartan Finance, Cashflow Capital, LulaLend, Business Fuel, Pollen Finance, Bridgement and many more. Collectively they have lent in excess of R20bn to more than 100 000 SMEs over the last 5 years.

“These numbers may appear small compared to the R200bn Guarantee Scheme from the National Treasury, but they are vital to more than one million SME owners and their employees, with an indirect impact on over five million South Africans who depend on them. This impact is exacerbated by the fact that many of them have also been precluded from claiming UIF as the employees are sometimes casual or are not registered with UIF, even though they pay UIF levies in PAYE, ” notes Michael Du Plooy, CEO of Cash Flow Capital.

As a recommendation, Du Plooy says that government should consider supporting the SME sector through the non-bank lenders who have direct access to these owners. “This would entail the creation of a R10bn non-bank funding guarantee scheme to enable cash to flow to SME owners. This will allow them to weather the storm and give them access to start-up funding as the lockdown lifts in the respective Levels.”

Along with this, government should also consider accelerating the lifting of restrictions to allow SMEs to trade, says Du Plooy. Level 5 saw only 10 – 20% of essential-service SMEs trade. This increased to 30 – 40% in Level 4 and we expect 75% to trade under Level 3. This will have a significant impact on the SME sector.

“We believe that government should start lifting restrictions now as there is a high level of awareness in the general population regarding personal hygiene and social distancing. This is vital because the sooner these businesses can trade, the sooner they can come off support. Unfortunately we have only six weeks left until 30 June when three-quarters of our small businesses have indicated that they will have to close down,” Du Plooy concluded.


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