Banking on SA’s SMEs for economic recovery

‘Small businesses will be the cornerstone for emergence from our current economic position’ – Absa Relationship Banking’s Matthew Hunter.
Image: Guillem Sartorio/Bloomberg

Small, medium and micro enterprises (SMMEs) contribute significantly to the South African economy. Different estimates put the range between 30% (Bureau for Economic Research) and 34% (IFC), with even higher numbers to reflect their contribution to employment – 50% to 60%.

One could argue that if the SMME sector thrives, South Africa’s economy will also benefit. However, if the sector suffers, the impact on communities is severe.

In the most recent quarterly study released by the Small Enterprise Development Agency, a sobering statistic was put on the table: Of all jobs lost in the economy up to the third quarter of 2020 – most due to the impact of Covid-19 – 90% were lost in the SMME sector, with employment contracting by 1.5 million jobs.

“The SME [small and medium-sized enterprises] sector is going to be the cornerstone for emergence from our current Covid-19 economic position,” says Matthew Hunter, Head: General Banking at Absa Relationship Banking.

“While the tracking of the SME market remains difficult, there seems to be about two million businesses out there, creating growth and employment for the country,” he says.

Absa has made a conscious decision to focus on this sector, to act as a catalyst for growth and employment opportunities. Providing relevant propositions to grow this sector will ultimately assist in growing the economy.

“Focusing on SME acquisition, of course, also becomes a feeder stream of business clients for the Absa Group,” Hunter admits.

“If we find a small entrepreneur and can provide a proposition that grows with the client, we will have a larger client in the future. This is a win for the client and a win for the bank.”

Reinvention, out of necessity

SMEs have had to reinvent themselves over the last year to become more digitally present, not just in the way they receive and make payments or manage stock, but also in the way they interact with other SMEs and with their banking partner.

Hunter notes that as a result of restructuring and optimisation processes by larger companies caught in a shrinking economy, many retrenched employees have had to be innovative in coming up with ways to make ends meet – by starting side hustles to keep an income stream going.

“In many cases, those side hustles have turned into viable businesses where the entrepreneur is now looking for financial resources and support to take it further,” says Hunter.

To business bank, or not?

Often sole proprietors, whether borne out of Covid-19 circumstances or having been in business for longer, run their business finances through their personal bank account.

Hunter argues that there is merit in considering a business banking account. “It changes your relationship with your bank. At Absa, every Business Banking client has a named business banker whom they can consult for credit questions or funding queries. It is an anchor relationship that can help the entrepreneur,” he says.

Business clients also get access to a direct Business Banking digital channel and call centre that can assist 24/7. “Your business is always on, so your bank should be as well,” says Hunter.

Clients who don’t have business banking accounts could be losing out on value-added services that fit their needs and are relevant to their business activities.

A further benefit, according to Hunter, includes access to business finance, which won’t be available if you are running your operation through your personal account.

A business account also assists in streamlining the tax affairs and accounting of both the individual and the business. “Your overall financial management is enhanced if your accounts are separate,” says Hunter.

Hunter believes that the perceived cost of business banking should no longer be a deterrent for switching. He argues that there are good, affordable and flexible options available, such as Absa’s Business Evolve solution, with particularly attractive offers for sole proprietors.

Clients can open a Business Evolve Account online via the Absa Banking App or the Absa website, and most banking items – including maintenance issues – can be solved digitally or telephonically where required. Added functionality such as Absa’s Cashflow Manager is also included for clients who want to use it.

Increased understanding leads to increased support

The Cashflow Manager, which offers basic accounting and bookkeeping functions to small business owners, opens many possibilities for growth.

A lot of small businesses are looking for funding for growth and expansion, but for the bank to feel comfortable about providing that finance, it must understand the business better.

Using the Cashflow Manager assists the business in seamlessly feeding through data on payments, balance sheets and cashflow to enable the bank to make informed lending decisions.

Hunter says Absa is driving its Business Banking propositions because it adequately addresses the needs of SMEs.

“If we can take a street vendor from a cash-based business to tap-and-go – that is a win. If we can encourage a plumbing business to use new digital technology to receive payments, that is a win,” he says. “We will engage and bank clients of any size, from the street vendor to a multinational.”

Brought to you by Absa Retail and Business Banking.

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