What you need to know about SME payment holidays

CAPE TOWN – The current lockdown in South Africa has halted all non-essential businesses in the country’s globally commendable plan of action to curb the spread of Covid-19.

President Cyril Ramaphosa and his team have set out to protect South Africans in all areas of one’s well being. Including financial institutions offering payment holidays for small and medium enterprises (SMEs) during these unprecedented times.

But what are the consequences of these payment holidays? And what are the requirements? 

 

SMEs are instrumental in inclusive economic growth and development in South Africa. According to the Banking Association of South Africa, SMEs are estimated to make up 91% of formalised business in the country, employ 60% of the labour force and contributes 34% to South Africa’s Growth Domestic Product (GDP). 

 

Adclick Africa Media Group survey in 2019 revealed more than a third of the country’s total market value of goods and services coming from SMEs, where the majority of such generate less than R200 000 annually. Showing 47% of SMEs employing two to five people, 39% have only one employee and 1% employ 21-50 people.

The importance of SMEs is understated in its contribution to the country, and payment holidays that protect them are welcomed. 

 

What should SMEs know about payment holidays? 

Hanno Bekker founding director of The Financial and Legal Research Group says; “I want to highlight that the payment holidays are not without consequence. In these uncertain times, we must understand what economic interventions such as payment holidays entail and how they are going to unfold so that we may be prepared and prevent unnecessary future economic strain in the post-pandemic world”. 

 

Bekker sheds light on payment holidays from April 1 – June 30 will pause your legal obligation of monthly payments. However, it does not stop loans from incurring interest and bank charges. SMEs will still incur these charges over the payment holiday period and will be liable to it after the lockdown has been completed.

 

“We strongly recommend to all SME’s who can afford it to avoid making use of the payment holidays. The long-term effect of paying interest on the increased amount after the three-month holiday can have a severe impact on your business’ future cash-flow. If there is no alternative, then you should use it, but be aware of the implications,” Bekker went on to warn.

 

Criteria for SME payment holidays:

  • The business must be based in South Africa
  • Annual turnover must be less than R20 million
  • Accounts and tax must be up to date including payments for March
  • Your business must be in good standing with the bank
  • Payment holidays do not include payments which have already fallen behind

 

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