Research shows unrest, lack of funding and lockdowns have left small businesses in a bad way

Research shows unrest, lack of funding and lockdowns have left small businesses in a bad way

A small number of businesses don't see themselves reopening after the July unrest.

A small number of businesses don’t see themselves reopening after the July unrest.

  • Some businesses don’t see themselves reopening following the July unrest.
  • Research carried out by a trust funded by the Oppenheimer Generations Foundation shows that some small businesses are still suffering the effects of the lockdown restrictions.
  • The unrest and lack of funding only made things worse.

Many South African small, medium and micro-enterprises (SMMEs) took Covid-19 head-on. They dusted themselves off to make their comeback after the devastating level-5 lockdown. They prioritised preserving jobs and believed their efforts would get them to bounce back in terms of turnover and profit by the end of 2021.

But external shocks like the back-and-forth lockdown restrictions and civil unrest could undermine their efforts.

According to the SA Future Trust Baseline SMME Report, SMMEs feel optimistic about the financial future of their businesses.

However, with the lockdown in its 18th month and no indication of when it will all end – and with SA running behind with its Covid-19 vaccination programme – the report showed that the little savings that some SMMEs had are now depleted.

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

Unrest hit some businesses hard

The trust ran a survey between October 2020 and March 2021 and another one later in July after the unrest. Although only businesses representing 6% of its total loan book responded to the July poll, a third of those reported that they could not reopen their businesses.

Some needed more time, going up to the end of the year to pick themselves up again, or they were waiting for lockdown regulations to ease.

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

The SA Future Trust, which carried out these surveys, was established in March 2020 with a R1 billion donation from the Oppenheimer Generations Foundation to support SMMEs through the Covid-19 crisis. The trust gave five-year interest-free loans to almost 10 000 small businesses, paid directly to their employees last year to provide financial relief.

Most of the businesses that responded to the trust’s main survey between October and March are still operating. Only 3% indicated that they had been forced to close shop permanently at some point during the ongoing lockdown. Women-owned businesses proved to be particularly more resilient. Fewer of them closed between March 2020 and March 2021 compared to those owned by men.

“This is consistent with research literature that women-owned businesses present a lower risk to investors and are considered a more reliable group which maintain higher repayment rates with lenders than male-owned businesses,” wrote the researchers.

Not enough financial support

The SA Future Trust said most of the SMMEs it lent money to struggled to access credit for their businesses even before the Covid-19 crisis. Many relied solely on sales revenue to sustain their businesses. When the pandemic hit SA shores, not much changed for these businesses despite the promise of financial relief by President Cyril Ramaphosa at the beginning of the lockdown.

“It is interesting to note that, for at least 50% of respondents, the SA Future Trust loan was the only relief they reported to have taken up,” said Ashleigh Fynn-Munda, a social investment associate at Oppenheimer Generations Philanthropies.

In the report, researchers indicated that some businesses said they turned to the SA Future Trust because other relief options such as Unemployment Insurance Fund’s Covid-19 Temporary Employer-Employee Relief Scheme (TERS) did not pay out soon enough. Some were not eligible for other relief schemes government had put in place.

But at least the TERS scheme came through for many afterwards, with nearly half of survey respondents stating that they received payments from it. The biggest scheme that was supposed to provide financial relief to businesses was the Covid-19 Loan Guarantee Scheme. However, it ended up disbursing less than R20 billion of the promised R200 billion.

The SA Future Trust said it was able to come to the rescue of many of these businesses because it put in place favourable loan terms to ensure rapid deployment of funds to businesses in need. For instance, SMMEs only needed to supply the details of the beneficiaries who would be receiving the payments. But they also needed to be clients of any of the big six banks, i.e Absa, FNB, Standard Bank, Nedbank, Investec and the Capitec-owned Mercantile Bank.

The trust said the lesson it took from this exercise was that SMMEs need funding without having to jump through hoops. It said South Africa needs to have simpler processes and systems for SMMEs to unlock funding quickly.

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