The fund, which will be allocated R1billion in 2019/20, will provide wholesale funding to private and public sector incubators.
Although it is positive to see the government commitment towards small business development, it would be far more cost effective - from a national rollout perspective - to combine this funding with the CEO Initiative announced in 2016, as pooling this would relieve the government to improve focus on existing funds and assist in ensuring effective management by the private sector.
It is crucial that the implementation of this new fund implementation is matched with the intent to target deserving beneficiaries and accurately allocate backing to start and expand sustainable small businesses. There also needs to be a balance between the money borrowed from the fund and sustainability measures.
Finance Minister Malusi Gigaba also revised the GDP growth forecast to 0.7 percent, down from 1.3 predicted in February. He said revenue shortfall will be R50.8 billion and the budget deficit 4.3percent against the 3.1 percent forecast previously. This announcement may raise concerns that South Africa may be over-indebted and possibly lead to another credit ratings downgrade.
Should this happen again, the knock-on effect will be that lending and seeking loans will become even more costly for South African consumers and businesses, as interest rates and costs rise to adapt to this new volatile economic environment.
The increased cost of borrowing will impact domestic banks, including their ability to service foreign currency obligations and have a ripple effect on SME development and consumers who will have less disposable income. This will influence the cash flow "health" of small businesses.
Although the economic landscape seems uncertain for SMEs, it should not deter decision makers within financial institutions from investing in small businesses as a contribution to the country’s fiscal recovery. SMEs should, in turn, also consider several factors when seeking new funding or managing existing debt.
Here are a few tips in this uncertain environment.
Ensure you understand the funding options that exist, as the type that is best suited to your needs - be it equity, long-term debt for fixed assets or shorter-term working capital. This will determine who to approach, the term and price to pay, and what impact this will have on cash flow.
Seek expert advice. Speaking to a financier who not only offers the right type of funding, but who also understands the business and the challenges likely to be faced, will enable the business owner to be realistic about short and long-term cash flow projections.
Relook your business plan and review ways in which performance can be improved.
If SMEs are providing credit terms to customers, they should place more emphasis on handling their debtors promptly and professionally to ensure their cash flow is not affected when it is needed. As every business has its share of slow-paying and non-paying customers, bad debt is a problem for businesses of all sizes.
Now, more than ever, South Africa should be backing entrepreneurs. "The Entrepreneurial Ecosystem of South Africa: A Strategy for Global Leadership" report by Global Entrepreneurship and Development Institute (GEDI) states that by improving entrepreneurial conditions by 10percent, $176 billion could be added to the economy.
Creating an enabling and conducive environment for SMEs will go a long way in helping more businesses grow and will add to the overall success of the country’s economy.
It is therefore crucial, particularly in trying economic times, that South Africa creates a thriving entrepreneurial-geared ecosystem which supports SMEs’ ability to transact.
Christo Botes is executive director at Business Partners Limited.
- BUSINESS REPORT