South Africa: Access to capital key for SME recovery

The co-founder of Lulalend, an online provider of short-term business funding, said the firm had seen a 35 percent uptick in its weekly average growth-focused funding requests – like investing in inventory, purchases of equipment, investment marketing and increasing the staff based on permanent or temporary basis – compared with the second quarter.

Lulalend said in terms of loans issued under lockdown level 1 versus the second quarter, it had seen a 76 percent uptick.

Gosling said customers that were on restructured advances in June, which was around the 57 percent, had fallen to 35 percent. With more rapid production, Lulalend expected that within the next three to six months, as long there isn’t a Covid-19 resurgence, most of those businesses would be able to trade out of that restructure.

“About 48 percent had just indicated funding growth throughout. This gives us optimism going ahead into the holiday season as well as into next year.”

The pandemic and the resulting global recession had dealt a severe blow to the local SME sector.

According to a McKinsey SME Financial Pulse survey published in July, 70 percent of SMEs were already cutting back on expenditure and retrenching staff. By the end of the second quarter, Statistics SA reported 2.2 million job losses.

A number of industries within the SME sector in various key industries were severely hit by the lockdown, especially travel, hospitality, off-line (non-essential) retail, consumer goods manufacturing and construction.

Gosling said SMEs saw a significant drop in sales revenue across all sectors. “Based on our SME survey data collected in July, 94 percent of businesses had suffered more than a 50 percent drop in monthly turnover, with 75 percent of our clients indicating that they had seen more than a 75 percent drop in revenue.”

During the peak of the lockdown, about 90 percent of Lulalend’s customers indicated that they only had a one-month cash runway.

“Most SMEs don’t have large reserves of funding to see them through extended periods of low turnover and cash flow. Without the necessary funds, many have struggled to meet their payment obligations, including staff payroll, rent, essential support services, inventory and supply chain payments,” Gosling said.

At the onset of the pandemic, the government launched a number of relief funds to support SMEs with access to capital during the period when economic activity was negatively affected by Covid-19.

Gosling said with more applications for relief than funding available, or slow approvals of applications, many businesses were left in a precarious financial position.

However, in a report published by Deloitte on the impact of Covid-19 pandemic in South Africa, the firm noted that despite the negative impact on small business, there has been an increase in social cohesion and support for local businesses emerging from the shutdown.

Lulalend said that it had seen this across its customer base.