Just as it becomes more difficult to get a loan if you (as an individual or your business) have a bad credit record, so South Africa has been penalised by ratings agencies Standard and Poor’s (S&P), Fitch Ratings, and Moody's Investors Service. Ditto, once credit is issued, it comes with a higher rate of interest. In a nutshell, South Africa is deemed as having an increased risk of defaulting on its debt repayments by the government.

Higher Risk Equals Higher Return

This has a knock-on effect to regular South Africans is rather like the ripples after a stone has been thrown into a pond:

The immediate effect is that individuals and businesses seeking loans will find it harder and more expensive. Banks’ interest rates will rise.

The next ripple out is the decreased disposable income consumers will have after paying for their houses and cars. At the same time, manufacturers are going to increase prices to cover the costly repayments they have to make.

This new volatile economic environment may have no impact on Jacob Zuma, who has in the latest Forbes' report been listed as South Africa's richest person. It will, however, impact SMEs.

It Is Not All Doom And Gloom

If you are tearing your hair out in despair right now – don’t! Chief operating officer at Business Partners International Mark Paper stresses that in these uncertain times, there are several factors to consider when managing existing debt or seeking new funding. “SMEs need to ensure that they understand the funding options that exist, as well as what type of funding is best suited to their needs – be it equity, long-term debt for fixed assets or shorter-term working capital – as this will determine who to approach, the term and price to pay, and what impact this will have on the business’ cash flow.”

SMEs should also be encouraged to seek expert advice prior to obtaining new funding. “By speaking to a financier who not only offers the right type of funding, but who also understands the business and the challenges likely to be faced in these uncertain times, will enable the business owner to be realistic about short- and long-term cash flow projection.”

Paper also advises SMEs to relook at their business plan and review ways in which they could improve performance. “SMEs should get back to the basics of focusing on the selling the right product or service at the right price and not chasing turnover for turnover’s sake.”

If SMEs are providing credit terms to customers, Paper adds that business owners should have more emphasis on handling their debtors promptly and professionally to ensure their cash flow is not affected when it is needed. “Every business has its share of slow-paying and non-paying customers. Bad debt is a problem for businesses of all sizes. This position is made even worse during difficult economic times, especially for a small business where one non-paying customer may be the difference between survival and failure.”

YOU Are the Solution

The Entrepreneurial Ecosystem of South Africa: A Strategy for Global Leadership Report by Global Entrepreneurship and Development Institute (GEDI) states that by improving entrepreneurial conditions by just 10%, $176 billion could be added to the South African economy.

As South Africans, we have overcome some truly tough times. Yet we pull through bragging that “Africa isn’t for sissies.” By challenging the beast of an economy and continuing to do your damnedest, you not only save your own skin, but improve the lives of all of South Africa.

Help Is At Hand

If this seems like rather a daunting task, you are right. But it is by no means an impossible task. Getting the expertise, experience, and insight of a business coach is required now more than ever.