DUE CREDIT - JSE MAGAZINE

DUE CREDIT

In recognising the importance of SMEs and the challenges they face, SA banking majors are tailoring solutions to ensure entrepreneurs are afforded easier access to finance

DUE CREDIT

The past few years have been tough on SMEs in SA. A weaker rand and increasing fuel prices are just some of the stark reminders that the country is still battling rough times, and this means SMEs in particular should pay careful attention to their financial health and well-being.

Daniel Kaan, CEO of Business Core Banking at FNB Business, says the current economic context should influence the way in which SMEs manage their credit needs because, compared to larger enterprises, these businesses are the most vulnerable in harsh economic cycles. ‘While it may be difficult to predict with certainty the phase of the local economy, the focus for SMEs should be to ensure that their businesses have the right credit mix, regardless of the economic cycle,’ he says.

Kaan outlines key areas SMEs should consider when reviewing their credit requirements, namely identifying the need for credit or whether cost containment considerations might be enough; understanding the available credit mix and choosing the product that best fits their needs; using but not abusing credit, and knowing how to manage this; and using credit effectively to help with cash flow and short-term funding needs.

FNB recently received $50 million from development finance institution Deutsche Investitions- und Entwicklungsgesellschaft (German Investment Corporation) to deploy towards SME development in SA. In addition to this, FNB Business provides various business credit solutions, including the business revolving loan.

‘It offers greater flexibility as business clients can conveniently apply via FNB’s online banking for business, and funds can be used for various business needs,’ says Kaan. ‘The consideration from a business when deciding to make use of credit should always be underpinned by affordability of the loan and whether it addresses the business need.’

Absa has separate enterprise development units mandated to offer access to finance for SMEs that would otherwise not qualify for funding through traditional banking channels because of their inability to meet the collateral/balance sheet requirements. The bank’s standards allow it to lend to SMEs in corporate supply and distribution chains – customers who have contracts and purchase orders (that is, those with cash flow projections that show repayment ability).

The lending decision is mainly based on the SME’s ability to generate cash flows – not their ability to provide security. There is credit that is offered to 100% black-owned companies with public sector contracts or purchase orders; 51% black-owned companies doing business in both the public and private sector; at least 51% women-owned businesses; and non-BEE SMEs. The bank also offers non-financial support, including financial management training and business mentorship.

Nedbank takes a multifaceted approach to enterprise and supplier development – the key objective being sustainable growth and job creation, says Nirmala Reddy, the bank’s senior manager of enterprise development. Financial management is a critical component of Nedbank’s enterprise development interventions. It provides financial management training as a standalone offering or as a module within a more comprehensive curriculum.

‘Business owners receive training that empowers them to understand the complexities of finance,’ she says. ‘Through practical exercises, it’s demonstrated how the finances of the business can be used as a management tool.’ The practical training creates an understanding of financial disciplines that are key to the business. ‘All exercises and practical work are done in the context of the real-life scenario of the business owner and his/her business.’

Nedbank offers small businesses a suite of innovative solutions, including Gap Access – which provides more established businesses with access to working capital based on their card turnover, with flexible repayment terms; Payroll Lite, a web-based payroll solution that offers full functionality, including payslips, automatic statutory payment calculations and reporting capabilities; Money Manager, a budgeting and tracking tool; and Nedbank Accounting, an integrated online accounting solution that offers automated statement integration and on-the-go invoicing and quoting. Another innovative offering is the recently revamped SimplyBiz, which offers a resource, support and network centre to assist business owners through their growth journey.

Standard Bank, in terms of lending, offers a range of products for small businesses, including overdrafts; comprehensive financial solutions for capital equipment and vehicles; and revolving-credit plans, which provide a line of credit that may be used as working capital or bridging finance, and which are repayable in equal monthly instalments (customers can also revolve funds once 15% of the limit is repaid subject to holding a good credit record). The bank has also introduced Merchant Capital Advance, where the advance amount and repayments are based on card sales. With regards to business support, a key initiative is BizConnect, which helps business owners navigate the ins and outs of owning a new business, as well as how to start, manage and grow it.

Deenash Pillay, head of small enterprise at Standard Bank, explains that BizConnect contains sector-specific information in addition to featured articles and videos on many topics relevant to entrepreneurs, and includes helpful business tools such as a business plan template and tax checklists, as well as guidelines for expansion into the rest of Africa.

Standard Bank also has several consumer education programmes in place, says Pillay, which are held annually for entrepreneurs across the country. ‘The programmes equip entrepreneurs with the skills and knowledge to successfully manage and grow their businesses, with topics including business planning, marketing and sales, financial management, and streamlining daily operations. Programme facilitators also provide support by integrating the businesses into supply chains.’

Grindrod Bank, though its debtor finance offering, provides a short-term financing solution to improve cash flow. It allows a business to use the cash due to it from customers in advance, rather than waiting for them to pay, which puts the business in a stronger position to negotiate more favourable discounts with suppliers. The way it works is simple too: Grindrod Bank purchases the debtors book and makes early payments on invoices for a period of up to 120 days.

Benefits of debtor finance include an improvement in the cash flow position of the business, as the bank will advance 70% to 80% of the fundable debtors book, with the balance made available on receipt of the funds from the debtor; surplus cash is available, enabling the business owner to become more competitive in the marketplace; and a working capital facility that will grow in line with the debtors book. Minimum qualifying criteria apply, among which are that the business is well established and has a good spread of trade debtors with strict trading terms; it has a debtors book exceeding R10 million; and that good controls, processes, financial systems and credit management are in place.

Mercantile Bank Private Bank is the first financial institution in SA to cater exclusively for entrepreneurs, with flexible solutions tailoring treasury products for businesses. These include a business overdraft with a revolving facility and instant access to additional funds; a business loan with flexible terms and competitive interest rates; asset finance including leasing, rental finance and instalment finance; and business property finance allowing for the purchase of business premises.

There are also players in the private sector to which SMEs can turn for financial assistance and support. In the past financial year, Business Partners Ltd, a risk financier for SMEs in SA and selected African countries, approved R1.049 billion in funding through 295 investments for SMEs.

‘Of these new investments, financial assistance to black entrepreneurs increased to 40.5% and assistance to female entrepreneurs improved to 37%,’ says MD Ben Bierman. ‘Placing over R1 billion into the hands of business owners has helped save and facilitate much-needed job opportunities in the South African environment, assisting in driving the economy forward. During a year when low economic growth impacted all businesses, especially SMEs, this outcome is encouraging.’

Bierman also highlights the latest Business Partners Limited SME Confidence Index, which shows that business confidence levels have been on the rise since the start of 2018.

‘This is certainly a good trend, since increased business confidence bolsters SME owners’ willingness to grow, employ more people and better manage their cash flow,’ he says.

‘However, these confidence levels may decrease again if government does not continue to ensure that they are backed up by stability and certainty in the economy and regulatory environment.’

Among the key conclusions Bierman says the company made after compiling these results is that there is a significant need for more innovative funding solutions and well-planned, well-executed and accurate technical support for small businesses.

In October 2017, it introduced an interest-free technical assistance facility for SME clients, ‘which catalyses skills transfer for SMEs in fields that range from sector-specific specialist services to legal and accounting offerings’, he says. ‘We believe the facility will meaningfully support business owners to better manage their businesses, and improve profitability and competitiveness.’

SA’s SMEs do indeed have a lot to give – they just need a helping hand here and there to do so.

By Toni Muir
Image: Andreas Eislin/HMimages