Report paints gloomy picture for SMMEs

A survey conducted by FinFind confirms that small businesses are still knee-deep in debt following the Covid-19 outbreak, and many have had to shut their doors.
According to the report, 60% of SMMEs were unable to operate during the lockdown, while 42.7% were forced to close.
The report by the financial institution also noted a significant decrease in revenue in the first five months of lockdown.
About 76.2% of the respondents experienced a drop in revenue, while 17.5% reported that their revenue remained the same, and only 6.3% saw an increase.
The lockdown also wreaked havoc on unemployment levels. A total of 60% of full-time employees lost their jobs, 76.8% part-time employees were left without work, and 53.4% casual employees were shown the door.
FinFind partnered with the Small Business Development Department, the Small Enterprise Development Agency (SEDA), Business Leadership SA, and the Johannesburg Stock Exchange on the Covid-19 Impact Report.
It mapped out each respondent’s situation prior to lockdown, the impact over the first five months of the lockdown, and when level three was introduced.
Factors that forced SMMEs to close included existing debt, a lack of cash reserves, outdated financials and an inability to operate during the lockdown.
As pointed continuously out by many in the sector, even before lockdown, access to funding was a major challenge.
“Of the total funding requests made during the first five months of lockdown, 47.9% of the funding requests were made to government, 27.4% to banks and 13.6% to family and friends, and the balance made to formal lenders,” the report stated.
“One of the major frustrations for business owners is that more than 60% of those who applied for government funding, did not receive a response to their applications.”
Reasons cited by banks for turning them down included a poor credit score, a lack of financial documents, too much credit exposure and no tax clearance certificates.
“It is concerning that poor consumer credit scores remain one of the primary reasons cited by banks for rejecting Covid-19 relief funding applications for SMMEs,” it said.
“Banks need to develop new credit assessment models that focus on the repayment history of the business itself, rather than focusing on the business owner’s personal credit record to determine the SMME’s credit worthiness.”
A total of 42.6% of the SMMEs that applied for relief funds still had to close, while an astonishing 99.9% of them were rejected any funding.
Another major hinderance for small businesses was accessing online tools. Around 58% of them had never had an online meeting prior to the lockdown, and 45% of owners cited data as an additional expense they had not catered for.
“Only 56.3% had a website and whilst 61.8% had a Facebook presence (whether individual or business), 58.9% had never used paid digital marketing,” the report said.