Tips for entrepreneurs to enhance debt relief chances

While holding their breath for payments, or even just a response, they should double-check that they meet the qualifying criteria.
Small business owners are anxious about where they will be getting funding to pay their staff. Image: Shutterstock

Most small business owners have a common problem – the agony of uncertainty around the future of their businesses and the sad reality that many will have to let at least some of their staff go.

But their most pressing concern right now: receiving no response after applying for debt relief from the Department of Small Business Development through programmes set up in response to the Covid-19 pandemic and associated lockdown, which has has hit small businesses hard.

Tucked away in the heart of Kramerville, Sandton, is Donald Nxumalo’s interior design store. This beaming luxury designer employs nine South Africans, but is currently grappling with the stress of not knowing how he will continue to pay their salaries.

Donald Nxumalo of Donald Nxumalo Interior Design. Image: Supplied

Before the Covid-19-induced lockdown, this store had a steady stream of customers; Nxumalo would consult as many as 20 clients a week. The business now consults about half of that number, virtually.

This is not the only business that is feeling the weight of the lockdown on operations.

When the township economy and youth entrepreneur development are discussed, the name Bulelani Balabala often comes up. The young entrepreneur and business speaker has won numerous awards for his work.

He is CEO of Intercessor Army Franchising, a township-based branding and print manufacturing company that has served local and international brands and created employment for a number of young people. He is also the founder of the Township Entrepreneurs Alliance – a non-profit organisation aimed at developing entrepreneurs in informal and rural areas.

Balabala’s business has taken a double hit this year: thieves broke into the company’s premises in Tembisa, assaulted staff and stole equipment – and the national lockdown came into effect 15 days later.

“We have ceased all operations due to the lockdown,” he says. “The biggest challenge is that even though we are looking at Level 3, which allows us to open, some of our clients are not open because most of our activities are stimulated by activity. Now, because there is no social and physical activity taking place, there is no reason to commercially advertise anything.”

Bulelani Balabala, founder and CEO of Army Intercessor Franchising. Image: Supplied

He says he only paid his eight staff members’ salaries until March, and has been waiting for the Unemployment Insurance Fund Temporary Employee/Employer Relief Scheme (Ters) benefit to kick in from April onwards.

Simphiwe Masiza, founder and CEO of EmpowaWorx Events and Communications, says he is also yet to receive payment from the Department of Small Business Development.

“I have applied for the relief fund for SMMEs, however we’ve received no response as yet,” Masiza says.

He says to mitigate the risk, the company is going the digital route in its service offering, giving its clients the option of building their brands and doing reputation management online.

Simphiwe Masiza of EmpowaWorx Events and Communications. Image: Supplied

FNB business regional head for Gauteng South West Andiswa Bata says entrepreneurs might have some unintentional gaps in their governance and admin toolkit that are now needed to access Covid-19 relief benefits.

She says the pandemic is a good time for small business owners to reflect on some of the common features that keep popping up in relief eligibility criteria and the lessons learnt.

She says this can be achieved in four ways.

1. Company structure and registration

Besides ensuring company registration is updated, SMEs need to check that the list of shareholders and directors is kept up to date.

“Some relief measures prioritise companies that are owned by women or persons with disabilities, shining a spotlight on the need to keep the IDs, passports and medical confirmation [where appropriate] of key individuals updated and on file,” Bata says.

She says business owners need to keep evidence of authorised signatories [individuals who are authorised to sign agreements that are binding, such as Covid-19 relief loan agreements] and their specimen signatures, so that they are not delayed from getting help because of signatories who may no longer be involved in the business.

2. Tax considerations

Most available relief efforts cite the need for tax compliance. In short, the business’s income tax affairs need to be in order.

“Employers who have not kept solid PAYE and UIF registration and payment records, may find it more challenging to access certain types of relief measures that are specifically aimed at supporting staff salaries and employment,” Bata says.

3. Financial information

Apart from financial statements, which reflect a business’s liquidity management, operational efficiency, solvency and profitability pre-Covid-19, bank statements are typically called upon to provide more real-time verification of income and expenses. Bata says the historic frequency of returned debit orders, excesses and arrears may weaken the view of the operation’s good standing prior to Covid-19.

4. Commercial documents

Bata advises entrepreneurs to keep a record of signed and confirmed contracts, purchase orders and invoices, as these documents “can provide much-needed visibility on future cash flows – which can help unlock short-term finance.”

Rent is often one of the largest monthly expense items, therefore proof of a lease agreement as support evidence is needed.

“It is also crucial to read insurance contracts thoroughly, understand what your business could be covered for under different circumstances, and maintain payments,” Bata says.

Embrace digital payment channels

Bata says businesses that pay salaries into a bank account or via mobile payment channels will find it easier to provide evidence of staff existence and support requirements, as opposed to those that pay in cash.

“Some relief measures go further to require evidence that your company has been paying at least the national minimum wage,” Bata says.

“While available relief efforts are substantial, they are understandably finite. SMEs should use this opportunity to strengthen their governance and admin toolkit, and leverage technology, as this can [affect the speed at which] their business gets the help it needs,” Bata says.

Despite numerous attempts, the Department of Small Business Development has yet to respond to questions from Moneyweb on how many SMEs have been paid and how much has been paid out.

However, in an interview on Power FM Small Business Development Minister Khumbudzo Ntshavheni said the government’s decision to open more sectors of the economy – such as personal care and sit-in restaurants under what it calls “advanced Level 3” – is necessitated by inadequate relief funds to further support businesses.

Easing of Level 3 restrictions

President Cyril Ramaphosa confirmed in his televised address on Wednesday evening that Level 3 restrictions will be eased.

“Even with the measures we put in place to support companies, employees and poor households as part of the R500 billion relief package, there is a limit to how long these businesses can be closed,” Ramaphosa said.

While the reopening date has yet to be announced, activities that will be allowed to resume include:
– Restaurants for ‘sit-down’ meals;
– Accredited and licensed accommodation, with the exception of home-sharing
accommodation like Airbnb;
– Conferences and meetings for business purposes and in line with restrictions on public gatherings;
– Cinemas and theatres, to be aligned to limitations on the gathering of people;
– Casinos;
– Personal care services, including hairdressers and beauty services; and
– Non-contact sports such as golf, tennis, cricket and others (contact sports will be allowed only for training and modified activities with restricted use of facilities).

Ramaphosa stressed that “specific and stringent” safety requirements need to be adhered to for such businesses to remain open.

The easing of restrictions will be music to the ears of South Africa’s small business sector and those who have been waiting to hear when they will be able to support it again.

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