Although the impact of the novel coronavirus crisis on small, medium and micro enterprises (SMMEs) has been severe, it is difficult to quantify as there is no clear picture of the landscape of informal businesses in South Africa. According to Jennifer Cohen, Executive for Policy and Advocacy at the Small Business Institute, the lack of a proper baseline study contributes to this opacity.
Existing data indicates there are around 700 000 formal businesses but there are likely hundreds of thousands of micro and small businesses located in the informal sector. Many have not been eligible for relief funding as only South African-owned, registered, tax-compliant and UIF-compliant businesses could qualify. The South African SME Finance Association (SASFA) estimated that some 75% of small and micro businesses would not survive a lockdown period extended beyond June.
The Debt Relief Fund
In late March, the Department of Small Business Development (DSBD) rolled out a Debt Relief Fund and a Business Growth Resilience Facility to assist SMMEs. The Debt Relief Fund of R500 million offered immediate relief for existing debts and payments, provided the companies applying for relief could prove the impact (or potential impact) of the virus on their business. By mid-May, 1 268 SMMEs had been approved for debt relief, to an amount of R433 million. Some 26 039 applications were made, with 6 741 complete applications in progress. The Business Growth Resilience Facility offered working capital, stock, bridging finance, order finance and equipment finance to assist companies that manufacture and supply in-demand hygiene and medical products locally.
Sukuma Relief Programme
The high-profile R1 billion Sukuma Relief Programme, set up by the Rupert family, was launched on 3 April, offering R25 000 grants and low-interest loans to targeted small and micro enterprises (SMEs). By 6 April, the Fund had been oversubscribed almost three times, with more than 10 000 applications. Companies that were not solvent, tax-compliant, or viable were rejected. Ben Bierman, MD of Business Partners, who manages the fund, said the process showed that the criteria were too stringent, many companies struggled to submit their information electronically, and that businesses were looking for more than funding, requiring support in other ways.
The South African Future Trust
The South African Future Trust, set up by Nicky and Jonathan Oppenheimer, offered a loan of R750 per permanent employee per week for 15 weeks to businesses with an annual turnover of less than R25 million, trading for a year or more. The National Empowerment Fund’s Black Business Fund offered loans for black entrepreneurs to manufacture medical products, provided they could retain or increase direct jobs. In June, Budget Insurance launched a R6 million small business relief fund for small businesses with a turnover of less than R15 million. Each approved business would receive R100 000 and business mentoring support.
Commercial banks offering debt relief
Commercial banks, which were exempted from the provisions of the Competition Act so they could develop common approaches to debt relief, offered a number of relief measures to their clients in good standing, including three-month debt holidays (from 1 April – 30 June) and guaranteed loans for SMEs. Standard Bank financed immediate relief measures through a three-year loan for close to R3 billion with the International Financial Corporation. By the end of May, the bank announced that it had provided debt relief to individuals, SMEs and commercial clients in South Africa across 285 000 accounts.
Compensation fund
Other business rescue measures included the Compensation Fund for employees falling ill if exposed in the workplace (which falls under The Compensation for Occupational Injuries and Diseases Act, No. 130 of 1993), the Unemployment Insurance Fund to support workers in SMEs faced with a loss of income, and the payment of employment tax incentive reimbursements twice a year by SARS. Various government departments allocated funds to specific sectors, such as the R200 million Covid-19 Tourism Relief Fund established by the Department of Tourism.
Although numerous funds and relief measures were launched, they were not without challenges. A quicker response time for financial assistance was needed – underlying hold-ups included crashing websites, database info collection, proof of good standing, and more. Cohen said that imposing a less stringent set of requirements while maintaining a governance framework would have been ideal, with compliance retrofitted later. Many SMMEs complained of poor communication, little empathy, and often no reasons provided for rejecting relief, suggesting that the matter could have been handled with greater sensitivity. In addition, it was not always clear whether funding would take the form of grants or loans, which made it difficult to manage expectations.
