The COVID-19 pandemic and national lockdown has proved a death knell for several local businesses, many of which have been unable to fully operate under these trying conditions. Added to this is the increasing number of SMEs that are currently struggling to keep things afloat, which has been further exacerbated by the fact that financing is even harder to come by.

Looking at the current SME landscape in the COVID-19 era and how the ability to get financing has been impacted is software firm Xero. Its research, which was conducted just prior to the lockdown coming into effect, shows that that many finance applications were turned down.

“We found that small business decision-makers would take out a loan of R234,563 over the next year to support growth and they want to borrow almost R3 million (R2,711,160) on average over the next five years. Despite this, just under half (47%) said they had been rejected for a loan, either from a bank or traditional credit provider, while a further 70% said they are unfamiliar with alternative lending,” explains Colin Timmis, Xero SA Country Manager.

A clearer picture

The firm also found that a significant portion of SMEs did not have a clear enough picture of its financial situation in order to make an application for additional capital either, with Xero’s research yielding 28 percent among respondents.

“Keeping on top of your cash flow is more important than ever – especially for those looking to apply for the grants and schemes being offered. Unfortunately, according to the Heavy Chef research (PDF), 68% of SMEs were unsuccessful in their application for Covid-19 funding. In short, access to finance is a major threat to the recovery and long-term aspirations of South Africa’s SMEs,” adds Timmis.

“Access to capital is a fundamental necessity for the support and growth of almost every type of business. Regrettably, however, ‘applying for a loan’ has picked up negative connotations. If we are to ensure that businesses can access the capital they need, we must remove the stigma against borrowing as SMEs seek funding – whether it’s an essential government loan in light of Covid-19 or a private one to help spur business growth,” he continues.

While Timmis acknowledges the fact that many SMEs need to have a clearer picture of its financial situation in order to apply for the necessary financing needed, he also points to alternative lenders as a potential avenue to work around the issue of traditional lenders not being able to assist during the COVID-19 era.

Unaware of the options

That said, the alternative lender market appears to be a relative unknown entity locally.

“Almost three-quarters of respondents (74%) agreed that traditional lenders were becoming more stringent or pulling back on lending. The same percentage reported that they would be more likely to apply for finance if there were more lending options available. Worryingly, 76% agreed that they are not clear on what alternative lending options there are in the market for SMEs,” says Timmis.

“Alternative lenders leverage technology, automation and data-driven decisions to help provide SMEs with quicker decisions,” clarifies Trevor Gosling, CEO and co-founder of alternative lender Lulalend.

The ability to embrace technology in order to help finance SMEs could prove a disruptive one, with Daniel Goldberg, co-founder at digital financing company Bridgement, highlighting its advantages.

“We need to focus on removing the barriers that prevent small businesses from getting the funding they need to grow. Part of this is closing the knowledge gap that exists around alternative options. There will also be several learnings from the current financing schemes the government is running in response to Covid-19. Technology, real-time data, and alternative lenders can play a key role in simplifying processes in the future,” he points out.

An untapped alternative

Moving forward then, a greater number of SMEs will need to tap into the alternative lender market locally if they plan to keep going throughout lockdown and remain viable once the COVID-19 era ends.

“Surviving and prospering after the coronavirus pandemic will require many businesses to reach out for financing. We must work to destigmatise the borrowing process and make sure that SMEs are aware of the options so that the country’s businesses can come back strong,” concludes Timmis.

[Image – Photo by Melchior Damu on Unsplash]