Only 15% of SMMEs have support, 75% will fail if lockdown runs past June 30
CAPE TOWN – At least 75 percent of small medium- and micro-sized enterprises (SMMEs) will close down if the lockdown runs past 30 June, according to a survey by the South African SME Finance Association (SASFA) and assimilated by HeavyChef.
The survey involved 2 300 business owners and found that even under Level 4, 70 percent of SMMEs were not allowed to trade.
President Cyril Ramaphosa last week announced that the country would soon move to level 3 of lockdown, however, the areas with the highest rates of infections would most likely remain on level 4.
The Western Cape has become the epicentre of Covid-19 with 8 404 positive cases, which is 58.5 percent of the total infections in the country. The Western Cape is a leading tourist attraction which lends strong support to small businesses.
“SMMEs are the lifeblood of our South African economy,” said Karl Westvig, the chief executive at Retail Capital. “With the extreme disruption to their businesses, most will suffer huge losses, retrench staff and many will not make it through the Covid-19 lockdowns.”
The government and some wealthy South African families have made funding available to small business owners. According to Westvig, only a fraction of these businesses had any support.
“Only 47 percent of business owners applied for relief from government or financial institutions, because many of the remaining 53 percent did not believe they would qualify. But even among the 47 percent who did apply only 32 percent were successful. This means that a mere 15 percent of SMMEs with a turnover of below R10 million per annum, had any support,” he said.
Westvig said the R200 billion Loan Guarantee Scheme from the National Treasury supported the formal banks to lend to SMMEs with a turnover of up to R300 million 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 SMMEs 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.”
Clearly, 85 percent of SMMEs are being ignored when it comes to acquiring support, Westvig said. “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.”
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 R20 billion to more than 100 000 SMMEs over the last five years.
Michael Du Plooy, the chief executive of Cash Flow Capital, said these numbers might appear small compared to the R200 billion Guarantee Scheme from the National Treasury, but they were vital to more than one million SMME 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,” he said.
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 SMME 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 SMMEs to trade, said Du Plooy. “Under Level 5, 90 percent of small businesses were not able to trade and with the slight relaxation for Level 4, this has risen to around 30 percent are allowed to trade.
“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,” he said.
Du Plooy said: “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.”