SMEs not getting low interest rates benefit

South Africa’s record low interests may not be sufficiently translating into a direct benefit for the small to medium enterprise (SME) sector partly as a result of a conservative banking culture mixed with the more stringent capital adequacy requirements coming with Basel III rules.

This conclusion can be reached from the observations carried in the third quarter Business Partners SME Index released today. The index is designed to measure attitudes and confidence levels within the SME sector.

A statement released by Business Partners said “When it comes to the ease of access to business finance improving in the next 12 months, businesses owners’ confidence levels are significantly less at 43%. This is a decrease of 4% since last quarter”.

Business Partners MD Nazeem Martin said this drop in confidence is most likely due to the fact that even though interest rates are currently at their lowest levels in over 40 years, very few SMEs are able to obtain finance at prime interest rates. “Financiers’ lending practices and risk appetite have been impacted by them having to adhere to Basel requirements, effectively pushing up the cost of finance to perceived risky clients like SMEs. The increased cost of finance therefore dampens SME’s appetite for finance.”

Overall the index showed that while small business owners are less positive in their outlook about the South African economy their confidence levels in the growth prospects for their own businesses remain high.

The 2012 Quarter 3 third quarter index that the SME owners surveyed displayed average confidence levels of 49% that the SA economy will be conducive for business growth in the next 12 months. This is a decrease of 4% since last quarter. In contrast, business owners displayed 73% average confidence levels that their own businesses will grow during this period, up 1% from the previous quarter.

Martin said the fact that business owners are confident about the growth prospects for their own businesses is extremely positive, and may indicate that the reports and forecasts for 2013 may be unduly negative.

The lower confidence levels in the economy are being fuelled by lower economic growth expectations amongst economists, economic policy uncertainty associated with the leadership debate within the ruling political party as well as the recent violent labour unrest in the mining and agricultural sectors. “All of these factors have negatively impacted on business confidence levels and have resulted in lower levels of investment, especially by private sector firms.”

“Of course, entrepreneurs are by nature eternally optimistic, especially when it comes to their ability to positively shape and influence their own business, despite adverse factors over which they have no control,” said Martin.

The index also showed decrease in confidence levels of 5% to 26% amongst business owners when asked whether government is doing enough to foster SME development. Martin says that although over the years the South African government has done much to try and create a more business friendly environment, as recently evidenced by the slight improvement in the country’s overall rating in the World Bank’s 2012 Ease of Doing Business Survey, SMEs feel that additional assistance can be offered.

“SMEs indicated that government can and should do much more to foster entrepreneurship and aid them in growing their businesses, especially with regards to access to finance, streamlining business establishment and regulatory approval processes and better tax breaks for SMEs.”

SMEs had confidence levels of 55% when questioned on how confident they were of finding staff with the right skill sets and experience to facilitate growth of their businesses.

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