Nearly half – 42.7% – of South Africa’s small businesses have been forced to close as a result of the lockdown, a report by financial services company Finfind has found.
Factors contributing to the closure of Small, Medium, and Micro Enterprises (SMMEs) included existing debt, lack of cash reserves, outdated financials, and no access to relief funding, fatally combined with the inability to operate during the lockdown.
Although only 47.9% of businesses that had to close applied for Covid-19 relief funding, 99.9% of these applications were rejected.
Banks have cited poor consumer credit scores as a reason for unsuccessful applications, prompting Finfind to suggest that banks ‘urgently need to develop new credit assessment models centred on the re-payment history of the business itself, rather than focusing on the business owner’s personal credit record, to determine the business’ credit worthiness’.
In 2019, global trends showed SMMEs were the majority of formal businesses, employing between 60% and 70% of the population, whilst South African SMMEs accounted for 98.5% of enterprises but employed less than 30% of the population.
Post-lockdown, 76.7% of surviving South African SMMEs were optimistic about remaining in operation in 2021, but only 32% believed they would be able to offer new jobs.