SMEs: 75% face certain death
LOCKDOWN: LIFT IN JUNE OR ELSE THEY FAIL
Traditional vetting criteria will see SMEs miss out on loan guarantee scheme.
It’s no secret that small businesses are hardest hit by the coronavirus pandemic, and that some might even be forced to shut their doors for good after the lockdown. The SA SME Finance Association’s (Sasfa’s) recent survey, assimilated by HeavyChef, found 75% of small and micro businesses will close if the lockdown runs past June. The survey involved 2 300 business owners and found that even under Level 4 lockdown, 70% of SMEs aren’t allowed to trade.
Retail Capital CEO Karl Westvig said these statistics spell the inevitable for SMEs.
“With the extreme disruption to SME businesses, most will suffer huge losses, retrench staff and many will not make it through the Covid-19 lockdowns,” he said.
Despite financial relief programmes for SMEs from government, individuals and corporations, according to Westvig, only a fraction of these businesses have received 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 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.
The R200-billion Loan Guarantee Scheme launched this week, whereby National Treasury supports formal banks to lend to SMEs 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 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,” Westvig said.
He believes 85% of SMEs are being ignored in their need for support and that the best-placed funders for these businesses are non-bank lenders with cashflow-based lending models, who use risk scorecards and data-driven approaches, not collateral-based models.
The lack of government support for non-bank lenders leaves a gap in the system for Fintech companies to assist SMEs. 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’ve lent over R20 billion to more than 100 000 SMEs over the last five years.
These funds are vital to over one million SME owners and their employees, with an indirect impact on over five million South Africans who depend on them, says Cash Flow Capital CEO Michael du Plooy.
This is exacerbated by many of them being precluded from claiming UIF as employees are sometimes casual or not registered with UIF, even though they pay UIF levies via PAYE.
Du Plooy recommends that government consider supporting the SME sector through 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.”
He also believes government should accelerate lifting restrictions.
Only 47% of business owners applied for relief