Covid-19: Payment holidays are not without consequence for Small and Medium Enterprises

The Financial and Legal Research Group commends the payment relief that financial institutions are extending to Small and Medium Enterprises (SMEs) during the Covid-19 pandemic.

“However, 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,” says Hanno Bekker founding director of The Financial and Legal Research Group.

According to the Group, the Covid-19 virus will have a substantial impact on the economy as lockdown periods are extended, and as such many are wondering what their obligations and responsibilities are.

Bekker says, “To make it through this pandemic and to prevent total economic collapse, regular South African consumers must continue to make their payments to businesses. SMEs are the heart of our economy and employ millions of South Africans who still need salaries.”

From April 1 until June 30, the payment holiday will suspend your legal obligation to meet your full monthly bank repayment. However, it does not stop the loan from incurring interest or bank charges.

In other words, you are still expected to pay the fees and interest incurred on your loan for these three months after the lockdown is over.

As an SME you must meet the following criteria to qualify for a payment holiday:

• Your business must be based in South Africa

• The annual turnover of your business must be less than R20 million

• Your accounts and tax must be paid up to date, including payments for March

• Your business must be in good standing with the bank

• The payment holiday does not include payments on which your business has already fallen behind

“We strongly recommend to all SMEs 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 future cash-flow. If there is no alternative, then you should use it, but be aware of the implications,” he says.

“Businesses can mitigate the economic impact of Covid-19 by taking their business digital where possible and maintaining contact with their customer base. Re-routing all communication to cell phones, video conferencing. email and transitioning into the e-commerce space can aid in stabilising some income and allow entrepreneurs to continue to do business to a certain extent.”

In instances where business owners decide they are not going to pay their employees or suppliers, the Financial and Legal Research Group is available to advise at no cost. The Group can act on your behalf as far as possible as the courts are also directly impacted by the lockdown.

Contact the Financial and Legal Research Group at info@flrg.co.za – their team will contact you for a free telephonic consultation.