79% of small businesses are expected not to survive Covid-19. What can we do to help?
Cash-flow is the lifeblood of small businesses
Covid-19 has highlighted that cash-flow is the lifeblood of any small business- marking the difference success and failure. The global pandemic has severely restricted these SMEs´ ability to generate cash through operations, while accessing working capital through either debit or equity investments are limited given the current economic climate. The South African Reserve Bank (SARB) has responded by cutting the repo rate by 1% in mid-March and then a further 100 basis point, taking the repo rate to 4.25% – the lowest level since 1973. Additionally, prime dropped from 8.75 to 7.75%. All this signals good news for those businesses currently repaying debt. Nonetheless, the economy is expected to contract by 6.1% in 2020.
Covid-19: the situation in South Africa
When Covid-19 was first detected in South Africa, its politicians, scientists and advisors were able to draw on the experience of other countries, together with using local data, to evaluate the risks and start making tremendously difficult decisions. A nationwide level-5 lockdown ensued as community transmission rates began to increase. Unfortunately, these necessary measures have come with massive and multi-dimensional costs, putting over 525 000 small and medium enterprises (SMEs) and 6.6 million jobs at risk. The country has since moved to level-4 lockdown on 1 May. However, the deep challenges of SMEs are expected to worsen until lockdown reaches level-2 and level-1, when most small businesses can resume some form of normality.
Covid-19 is killing small businesses
The Covid-19 National Small Business Survey showed just how dire the situation is for small businesses in South Africa. 75% of SMEs will only be back to business at level-2 and level-1. 94% of SMEs are either in a cash-flow crisis or will be within the next 30 days. 63% of small businesses have already laid off their workforce or expect to do so within the next few weeks, while a staggering 79% of small businesses expect not to survive the pandemic.
A R500 billion fiscal stimulus
The president announced a R500 billion fiscal stimulus to mitigate the social and economic effects currently facing the country. As stated by Cyril Ramaphosa “extraordinary challenges call for extraordinary fiscal steps”. The stimulus package amounts to 10% of the country’s GDP. Providing small business owners with funding relief is just one of the ways the government is supporting SMEs liquidity needs, yet this funding remains elusive to small business owners. Of the 53% of small businesses that applied for relief funding, only 6% were successful in receiving funding support, according to the Covid-19 National Small Business Survey. Unnecessary qualifying criteria and lengthy tedious processes as just a few of the stated reasons for these figures.
Given the cash flow crisis the majority of SMEs now find themselves in, and the devastating implications their failure will have on the country as a whole, a solution must be found to provide these SMEs with fast, easy and affordable sources of liquidity.
Finvex.tech provides SMEs with immediate access to working capital
Finvex.tech can help! Our digitally enabled platform allows corporates to create early payment programs for the small suppliers in their supply chain. Today, paying and being paid are directly linked. When a buyer chooses to pay a supplier is when the supplier gets paid. Finvex.tech decouples this relationship! As soon as an invoice is approved by the buyer, a supplier can opt to get paid immediately in exchange for a small discount. The corporate “lends” its credit risk to the small suppliers, thereby enabling these suppliers to receive payment of their invoices in <24 hours at the cost of credit of their large buyer. Because the supplier leverages the buyer’s credit rating, the cost of the discount is significantly below the supplier’s own cost of finance, enabling them to improve their working capital and reduce their overall operating costs.
The funding for early payment can come from a 3rd party or the company itself. Unlike invoice factoring that is originated by the supplier, we have the corporate buyer at the centre of our operation, which guarantees that the invoice to be financed is free from fraud and will be paid by the buyer without dispute. Thus, the risk assumed by the financial agent is reduced to the corporate buyer’s credit risk. We offer a completely digitally enabled and automated platform, together with all the necessary supplier servicing requirements at no cost to the corporate buyer. The corporate is simply required to connect its accounts payable module to our platform via our proprietary API.
Working with Finvex.tech, we can ensure small businesses are ´one click away´ from having the working capital they require to survive Covid-19 and help mitigate the millions of expected lost jobs.