The COVID-19 pandemic has proved devastating for a myriad South African industries and business sectors, but perhaps none more so than the small-to-medium enterprises (SMEs) in the country.
To offer a bit more insight into this impact, local funding platform Lulalend recently held a roundtable to unpack some statistics and findings.
The platform also pointed to a survey it conducted in July, which makes for rather disheartening reading, as almost all businesses were severely impacted.
To that end, “Based on our SME survey data collected in July, 94% of businesses had suffered more than a 50% drop in monthly turnover, with 75% of our clients indicating that they had seen more than a 75% drop in revenue,” explains Trevor Gosling, co-founder and CEO of Lulalend.
He adds that the industries that the biggest change were travel, hospitality, offline (non-essential) retail, consumer goods manufacturing and construction.
Looking at the customers in its own ecosystem, Lulalend also notes that approximately 90 percent of SMEs surveyed only had one month worth of 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 businesses have struggled to meet their payment obligations, including staff payroll, rent, essential support services, as well as inventory and supply chain payments,” highlights Gosling.
Lulalend is also of the opinion that logistical and administrative hurdles for government’s SME-focused relief plans and funds, also played a role, as the help that SMEs needed did not arrive quickly enough.
With lockdown restrictions easing of late, as well as it turning into peak season for many of the affected industries, Gosling says that it is important for those SMEs which have survived, to have a thorough understanding of their cash flow positions, as well as plan for any eventualities over the next three to six months.
“Does your business have enough working capital to meet a backlog of orders or a surge in demand during the peak trading season? Understanding this and creating some predictability in cash flow allows an SME to plan ahead and invest more accurately for the future,” he explains.
A digital focus
As such, he stresses the importance of a healthy cash flow for businesses moving forward, along with a focus on ecommerce.
“A business needs to be able to make those upfront payments for inventory, fund marketing campaigns or invest in developing ecommerce capabilities,” he notes.
“The boom in ecommerce and online shopping that occurred during the pandemic is here to stay for the long-term. With businesses responding to this change, we have seen a 20% increase in the number of applications coming from online retailers,” Gosling continues.
Lulalend’s survey acutely points out that those SMEs which are able to integrate digital technologies into their environment with ease are set to succeed post-COVID, which is why the platform has developed solutions with that in mind.
To that end, Lulalend is providing its customers with a payment holiday that would allow them to access vital working capital at no cost over the peak season. Any business that takes out funding before the end of November will only have to start repaying from 11th January 2021.
“With the uncertainty of the long-term impact of the pandemic and recession, business owners need to be cautious and have contingencies in place, including building up their cash reserves to improve their liquidity,” concludes Gosling.