While the first fresh shoots of post-pandemic economic recovery are emerging in tandem with Spring, South Africa’s economy is still feeling the significant impacts of various macro-economic challenges. It’s at times like this that financial institutions need to respond to business owners in their moment of need with a long-term relationship-based view, combining both insight and agility to determine if their collaboration will build and protect the business, and in turn, rebuild the country’s economy.
That’s according to Sandile Shabalala, Chief Executive of Sasfin’s Business & Commercial Banking division, who believes that the small and medium-sized business community is most vulnerable at this crucial time.
“The lagging impacts of COVID-19, fuel price hikes, product and raw materials shortages resulting from the Russo-Ukraine conflict are taking their toll, with the recent spate of load-shedding having been a big issue for small businesses who couldn’t pivot to find alternate energy sources,” Shabalala says. “There’s so much that people and businesses are enduring at the moment, and I think that the impact is yet to be fully felt on a larger scale.”
Shabalala believes that many of the smaller businesses that have survived the last two years have done so by using excess cash just to keep going, and by deferring Capex projects in the hope that business conditions improve.
“Everyone is trying to maximise their working capital cycles and to navigate between creditor stretch and debtor contraction. Working capital management is, therefore, a huge focus point and concern for business owners who are seeking lending solutions to help them unlock more of their working capital capacity.”
In order to empower SMEs and stimulate the economy, all supporting stakeholders, including banks, have to re-assess how they remain agile in a very fluid operating environment that requires more creative solutions than traditional security-based lending.
“My sense is that SME support is not evolving at the pace of the market in the current circumstances,” Shabalala says. “In some instances, businesses will be denied credit or have to supply more collateral to secure what would have previously been a routine transaction. Nobody wins.”
“A contraction and tightening of credit will have a very tangible and adverse impact on small and medium business continuity, and in turn, on South Africa’s economic recovery and growth,” he adds.
Adopt an entrepreneurial ethos in banking
Businesses have never had to navigate quite such complex stormy waters before, which means that banks and other funders need to think differently when they’re creating solutions, coupling necessary governance processes and systems with the creative potential offered by an entrepreneurial mindset.
“For example, in a recent transaction for debtors’ financing, Sasfin looked at so much more than just our customer’s profile. We also looked at the profiles of all the related parties so that we had a full picture of the client’s whole landscape,” Shabalala says. “We drew on our own diverse internal and credit committee skill sets to customise an alternative transaction format that ensured sustainability for our client and success for the business.”
Sasfin offers working capital funding solutions, including debtor financing that enables owners to access a more significant portion – between 50% to 80% – of their tied-up debtors, a creative solution that trumps the maximum 33% of book funding line that could be secured via non-disclosed or disclosed lending.
“This is just one example of how the current environment has forced us all to rethink how we do things,” Shabalala says. “We’ve got to be really focused on finding solutions if we want to make a real impact.”
“At Sasfin, we’re working hard to understand our customers’ journeys so that we can be more responsive and adaptive in supporting their business needs.”
“This bank was born with an entrepreneurial, partnering mindset, and really does ‘see’ business owners. It’s this spirited entrepreneurial approach to working with South Africa’s small and medium-sized business owners – who are some of the bravest and boldest people in the country – that’s going to see Sasfin help build businesses and help build the country too.”