The head of the small business finance and regions department at the Industrial Development Corporation (IDC), David McGluwa, says the organisation has found a significant number of small businesses that are underserved by the funding interventions put in place to support them through the coronavirus crisis.
The R300 million Covid-19 small business industrial distress fund aims to plug that gap and offer businesses that qualify loans of R1 million to R15 million at prime minus 3%.
It is one of a bouquet of funds put in place to support businesses – whether existing or new clients of the IDC – which have been negatively affected by the pandemic.
IDC’s other initiatives include the Covid-19 essential supplies and the distress fund.Read: Rescue for Mpumalanga’s small traders who don’t qualify for relief funding
McGluwa explained how the funding works:
To qualify for the Covid-19 small industrial finance distress fund, a small industrial business must meet the following criteria:
1 Have a trading history of more than 12 months;
2 Have its annual turnover/revenue not exceeding R50 million;
3 Be registered and operational in South Africa;
4 Prove that it was profitable before the pandemic;
5 Prove that the lockdown has gravely affected its revenue and production capabilities; and
6 Have a turnaround plan that indicates a return to profitability within 18 to 24 months from the start of operations.
What kind of business might qualify for this fund?
Manufacturers, assemblers and other value-added services in the following sectors:
. Agro-processing and agriculture;
. Chemicals, medical products and pharmaceutical;
. Basic and speciality chemicals;
. Clothing and textiles;
. Heavy manufacturing;
. Light manufacturing;
. Media and audiovisuals;
. New industries;
. Automotive transport and equipment;
. Industrial infrastructure; and
. Basic metals and mining.
What business expenses is the fund designed to support?
The following financing facilities are available:
. Revolving credit facilities (contracts or proof of confirmed orders with the requirement of a joint bank account);
. Working capital facilities to fund operating expenses (limited to 36 months);
. Guarantees; and
. Asset finance facilities (where it can be shown that asset purchases will have a significantly positive effect on operations as part of the turnaround plan).
Do you offer help only to those businesses that qualify within the sectors the IDC funds?
Despite the drop to lockdown level 3, are you anticipating that many of these kinds of businesses will still be unable to stay afloat without help?
. Many small- and medium-size enterprises (SMEs) have cash reserves for only one month – with cash flow uncertainty set to continue, there is a high likelihood of large-scale business failures in the SME sector.
A significant contraction of the South African economy in 2020 is forecasted due to:
. Substantial job losses – about 1.2 million additional job losses and this will increase the longer the effect of the pandemic continues;
. A significant drop in household consumption spending as a result of the lockdowns;
. Major contraction of fixed investment as global and domestic uncertainty dominates sentiment; and
. Government spending under pressure due to a higher budget deficit.
The contraction in all these components of GDP will have simultaneous negative effects on large corporations, mines, manufacturers and retail firms.
SMEs in these supply chains are already struggling with cancelled orders and force majeure.
Once businesses have been approved, how quickly can they access these funds?
Applications under this fund will be prioritised because of the distressed nature of the businesses concerned. However, it must be emphasised that qualifying businesses ought to meet some of the conditions precedent to the loan prior to IDC disbursing the funds.