Research shows unrest, lack of funding, and bottlenecks have left small businesses in bad shape

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A small number of businesses do not see themselves reopen after the July unrest.

  • Some businesses do not see themselves reopen after the July unrest.
  • Research by a trust funded by the Oppenheimer Generations Foundation shows that some small businesses are still suffering from the effects of foreclosure restrictions.
  • The unrest and lack of funding only made matters worse.

Many South African small, medium and microenterprises (SMMEs) have taken Covid-19 head-on. They dusted off to make their comeback after the devastating Level 5 lockdown. They prioritized saving jobs and believed their efforts would rebound in terms of both revenue and profits by the end of 2021.

But external shocks such as round-trip lockdown restrictions and civil unrest could undermine their efforts.

According to SA Future Trust Baseline SMME Report, SMEs are optimistic about the financial future of their business.

However, with the lockdown in its 18th month and no indication of when this will all end – and with the SA delay with its Covid-19 vaccination program – the report showed that the small savings available some SMMEs are now sold out.

Based on a survey of around 3,000 businesses that received loans from SA Future Trust, the report showed that the combination of lockdowns and unrest in July has forced some businesses to take a temporary hiatus.

The unrest hit some businesses hard

The trust conducted an investigation between October 2020 and March 2021 and another later in July after the unrest. Although only companies representing 6% of its total loan portfolio responded to the July survey, a third of them said they could not reopen their businesses.

Some needed more time, going until the end of the year to recover, or they were waiting for the lockdown rules to be relaxed.

“This indicates that some respondents were still suffering from the effects of regulation and / or the impact of the unrest. A worrying 8% of businesses said they were unlikely to reopen, indicating that they would not. would not recover because the damage was too great, “the researchers wrote.

The SA Future Trust, which conducted these surveys, was established in March 2020 with a donation of R 1 billion from the Oppenheimer Generations Foundation to support SMMEs during the Covid-19 crisis. The trust has provided five-year interest-free loans to nearly 10,000 small businesses, paid directly to their employees last year for financial assistance.

Most of the companies that responded to the trust’s main survey between October and March are still in business. Only 3% said they had been forced to permanently close their store at some point during the ongoing lockdown. Women-owned businesses have proven to be particularly resilient. Fewer of them closed between March 2020 and March 2021 compared to those owned by men.

“This is consistent with the research literature that female-owned businesses pose lower risk to investors and are seen as a more reliable group that maintains higher repayment rates with lenders than male-owned businesses. “the researchers wrote.

Not enough financial support

The SA Future Trust said most of the SMEs it had loaned money to had struggled to access credit for their businesses even before the Covid-19 crisis. Many relied solely on income from sales to support their businesses. When the pandemic hit South African shores, little changed for these companies despite President Cyril Ramaphosa’s promise of financial relief at the start of the lockdown.

“Interestingly, for at least 50% of those surveyed, the SA Future Trust loan was the only relief they said they took,” said Ashleigh Fynn-Munda, social investment partner at Oppenheimer Generations Philanthropies. .

In the report, the researchers said some companies said they turned to the SA Future Trust because other relief options such as the Temporary Help for Employers and Employees (TERS) Covid-19 scheme from the Unemployment Insurance Fund did not pay early enough. Some were not eligible for other government assistance programs.

But at least the TERS program was applied to a great extent afterwards, with almost half of survey respondents saying they had received payments from it. The biggest program that was supposed to bring financial relief to businesses was the Covid-19 loan guarantee program. However, he ended up spending less than R20 billion of the R200 billion pledged.

The SA Future Trust said it was able to assist many of these businesses as it has favorable loan terms in place to ensure rapid deployment of funds to businesses in need. For example, SMMEs only had to provide details of the beneficiaries who would receive the payments. But they also had to be clients of one of the six big banks, namely Absa, FNB, Standard Bank, Nedbank, Investec and the Mercantile Bank owned by Capitec.

The trust said the lesson it learned from this exercise was that SMMEs need funding without having to jump through hoops. He said South Africa needs simpler processes and systems for SMEs to release finance quickly.

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