Business Live: JOHN DLUDLU: Small businesses need more than just loans to bounce back

Less red tape, prompt payment by the state and stable electricity supply would make a huge difference

It would be churlish to dismiss as insignificant the government’s latest version of a credit loan guarantee scheme — colloquially known as the Bounce Back initiative — to assist SA’s struggling small and medium-sized enterprises (SMEs), which were brutally hit by Covid-19, last July’s mayhem in two provinces and, lately, the floods that ravaged KwaZulu-Natal and parts of the Eastern Cape last month.

Last Tuesday the National Treasury announced that it had set aside R15bn to backstop loans for businesses with a maximum turnover of R100m that have been adversely affected by the floods, the earlier riots as well as the coronavirus pandemic.

As with the much-criticised R200bn scheme, which was poorly tapped (about R20bn worth of loans were given to businesses that applied) before being wound down in 2021, this latest scheme will be accessed through commercial banks, non-traditional SME funders and development finance institutions.

Loan amounts ranging from a minimum of R10,000 to a maximum of R10m will be available to qualifying businesses. Unlike with the previous scheme, this time around the government has set an interest rate cap (the repo rate plus 6.5 percentage points) and lenders and the government are sharing the risk of loan defaults. The government commits to taking the first 20.5% of losses. More flexibility is built into the scheme to allow the rescheduling of debt repayments. A R5bn equity-linked scheme is due to be introduced at a later stage.

Though the credit loan guarantee scheme is a little late, it is to be welcomed. SA’s small businesses need all the help they can get — loans and, of course, grant funding — to weather the effect of the deadly storm of the past two years. Also to be applauded is the government’s increasing willingness to listen to the players in the SME ecosystem. In 2020, at the height of the pandemic, it designed solutions without much participation by those it intended to help.

Worse, the relief measures — a cocktail of loans, grants and debt rescheduling — were accompanied by impossible qualifying criteria. In the middle of a cruel pandemic, SME owners were asked to fill out forms proving they were in distress primarily because of the pandemic; that they were tax-compliant; that they employed an SA workforce; and that they were majority SA-owned.

A more progressive posture would have been to extend help and then assist SME owners to comply at a later stage. After all, if operating in SA, the SME owners and their employees would in all likelihood be paying taxes in this country too.

Faced with this rigmarole of qualifying criteria, it is unsurprising that most opted to approach their banks instead of bothering with the new schemes. For the current scheme to succeed, the intermediaries and their clients will have to have appetite for loan finance in an environment where interest rates are on an upward trend amid growing inflation risks.

However, the use of banks has the advantage of quick disbursements given that risk assessment is likely to be easier than when evaluating a new client. The quantum of the guarantee, at R15bn, appears much more realistic than the headline-grabbing one of R200bn which was never going to fly anyway.

While welcome as interventions for the immediate challenges, the loans are unlikely to significantly move the needle regarding the other underlying conditions that are holding back SA’s otherwise resilient SMEs. Before the arrival of Covid-19 in March 2020, SA’s SMEs were already suffering from long-standing problems such as ongoing power outages; late payments from state-owned enterprises (SOEs), government departments, organs of state and big business; crippling red tape; municipal dysfunction; the effect of ailing state-owned enterprises; and recessionary economic conditions.

If humanity is lucky enough for the Covid-19 vaccines to continue to work in reducing the severity of infections, Covid-19 will become more bearable and the economy will stay open. However, these long-standing issues will continue to strangle SMEs and prevent them from realising their full potential as growth and job creators.

These issues need to be urgently addressed. The implementation of structural reforms — such as allocation of new broadband spectrum, the introduction of new sources of energy into the national grid, the introduction of private sector players (competition) to Transnet’s rail and ports infrastructure, and a dedicated effort to cut red tape for businesses — ought to be accelerated to free up SMEs to contribute to economic growth, employment and entrepreneurial dynamism.

During the pandemic more than 50 of SA’s big businesses heeded a call to pay SME suppliers within 30 days or sooner, and many others immediately settled outstanding invoices with SME suppliers to cushion small businesses. Such practices should continue and be institutionalised if the country is serious about creating an enabling environment for its SMEs. The government should ensure its organs implement the 30-day payment policy.

Finally, the long-overdue comprehensive review of the country’s labour and business laws should be carried out in an inclusive and pragmatic manner, driven mainly by the need to address the crisis of unemployment. The ultimate test of the success of these reviews should be how easy it becomes to start, run and grow SMEs in SA. After all, it is they rather than large businesses that are the best hope of resolving joblessness, especially among young black Africans.

by Business Day –

• Dludlu, a former Sowetan editor, is CEO of the Small Business Institute.