With the economy in recession for the first time in 17 years it comes as little surprise that small to medium business owners in South Africa are being kept awake at night by financial issues.

This is among the key findings from the SME Survey 2009, which tracks the confidence and sentiments of this critical contributor to the national economy.
Sponsored by Standard Bank, Umsobomvu Youth Fund (now operating as the National Youth Development Agency) and Fujitsu, SME Survey is in its sixth year and polls 2 500 business decision-makers on the issues they face and how they overcome these to remain competitive and sustainable in the current economic climate.
According to principal researcher Arthur Goldstuck, a dramatic shift in the issues which keep the SME owner awake at night has emerged from this year’s research. “In 2008, crime was overtaken by electricity problems, high interest rates and the price of petrol as the key causes for concern. However, we’ve seen a dramatic shift to financial issues as a leading worry – but the concern is still not as deep as it was regarding the infrastructure issues which faced them last year.”
Crime returns to the top of the list of challenges to the sustainability of SMEs. “What comes close behind is a set of factors related to the global financial crisis, while interestingly, interest rates are the third most troubling issue for the average business owner,” Goldstuck notes.
While interest rates are presently at a 28-year low following a sustained downward trend, businesses are still experiencing something of a hangover from the rapid upward surge experienced between 2005 and its peak in 2008.
“People were hammered so hard that the extent which it has come down has not yet allowed them to recover,” Goldstuck says. “Meanwhile, the lending policies of the banks have changed quite dramatically; they are keeping lending policies very tight.”
Louis Van Ravesteyn, head of small & medium enterprises at Standard Bank, says history has shown that the reduction in interest rates has a longer lag effect on SME’s than on individuals. Individuals are the first to experience the benefits of the reduced funding cost followed by SMEs. Access to finance is a complex issue. When dealing with the issue of granting finance, banks have to manage the challenge of having to balance risk and reward while protecting depositor and shareholder investments.
“The impact of the global financial crisis on consumer appetite has resulted in lower demand for many of the services and products provided by SMEs, impacting trade and resulting in financial distress on many local SMEs," he says.
"It is, however, encouraging to note from SME Survey that most SMEs are still showing acceptable levels of profitability, business confidence and resilience to manage their businesses through this economic downturn.  Business confidence is a critical aspect for economic growth as it is normally linked to business expansion and capital investment, with the final objective of financial success.
"We found that many SMEs held back on investment and expansion as demand dried up, however the findings in the survey indicate that SMEs are fairly well positioned to capitalise on opportunities when the economic upturn occurs. At Standard Bank we remain open for business and encourage SMEs to engage with their bankers around their funding needs to enable a win-win scenario,” Van Ravesteyn says.
Despite this rather gloomy outlook, there is good news. “What is astonishing is the extent to which SMEs remain profitable and confident,” Goldstuck says.
Some 28% of SMEs are strongly profitable, 39% say they are ‘just profitable’, and 24% are breaking even. Just 5% are making a loss, while 4% report that they ‘don’t know’. “The confidence of SME owners correlates with these numbers, with only 5% saying they have low or no confidence in the future of their businesses,” he adds.
The question of confidence in the face of what looks to be an increasingly deep recession is also telling; again, Goldstuck says the resilience of the SME shines through. “Most people are in no doubt of successfully bringing their company through the recession, with 59% saying they are very confident, with 36% neutral.”
However, he says that if things get worse, there are potentially a large number of businesses (those which are neutral) moving into the arena of low confidence and possible risk of failure. “There are two scenarios here; if the economy moves into recovery, SMEs are very well geared to prosper and continue to create employment and benefits for owners and employees alike. However, if it tilts the other way with rising fuel prices and an upward interest rate cycle, it could get quite grim.”
There are, Goldstuck agrees, always shocks in the system, but South African SMEs have proven their ability to respond saliently to the unexpected.
“In our business climate, the unexpected happens all the time. Those companies which can make it through the tough times – and indeed, those which are forged in difficult trading conditions – can handle the shocks and are likely to prosper when the economy improves.”