SMEs hang by a thread

Small businesses in the country might not be able to survive beyond the lockdown 

South Africa is in a race against time to save small businesses, with a study released by the South African SME Finance Association (SASFA) showing that 75% of small and micro businesses will go bust if the lockdown goes beyond next month.

SASFA said the survey, which involved 2 300 business owners, found that even under level 4, 70% of SMEs were not allowed to trade. Retail Capital CEO Karl Westvig said only a fraction of businesses surveyed had received any financial support from the government’s relief schemes.

“Only 47% of business owners applied for relief from the government or financial institutions, because many of the remaining 53% did not believe they would qualify. But even among the 47% who did apply, only 32% were successful. This means that a mere 15% of SMEs with a turnover of below R10-million per annum had any support,” Westvig said.

He added that the R200-billion loan guarantee scheme from the National Treasury administered through the banks would also fail to arrest the near demise of small businesses.

“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 R10-million per annum. As such, the bulk of this support is going to medium-sized businesses who can provide security and have longer track records.”

One of the qualifying criteria for businesses to receive the government guaranteed loans is that a business must be up to date with its other loan repayments or be an account holder without any loans as at end-February 2020. National Treasury said banks were required to check the qualifying criteria of applicants.

“They will use their existing processes and infrastructure to process loan applications. Banks have discretion on whether they wish to extend a loan to an applicant. Banks will cede any loans under this scheme to the Reserve Bank as security and will report regularly to the Reserve Bank on the performance of the loan portfolios.”

The tourism sector is one industry where COVID-19 has wreaked havoc and threatened the viability of many businesses.

A study by the Tourism Department and World Bank’s International Finance Corporation found 99% of the 1 600 firms surveyed were affected by COVID-19.

It also found 83% in the industry reported revenues in March were down more than 50% compared to the same time last year, and that 58% of firms were unable to service their debts.

Fiy-four percent of firms were unable to cover fixed costs in March.

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