Mark Silberman On Banks And Sustainable Business
I have been in business for some 30 years and I have never ever seen anything like this meltdown happen before, yes, we have had our ups and downs and of course the economy was in decline, but never a meltdown with such force. The steps that the President took was the right thing to do, it’s the only way to avoid the affect that this virus has had on the world. Time will tell if we have dodged the bullet.
The problem with the timing of the lockdown is that there are unintended consequences, the most notable being the drying up of cash in the economy, especially for small and medium size as all business is holding on to their cash resources because of the uncertainty while smaller businesses go to the wall.
I direct this article to the banks and I do offer them some guidance if they will be gracious enough to at least take note. Banks have a very important role to play in saving South Africa. Unfortunately, they need to look beyond the bottom line, because if they don’t it will take us 15 to 20 years to come right.
The government didn’t give instructions to the banks. First world economies have provided huge amounts of cash for the business world and to people who are going to be affected by this lockdown, unfortunately this will never be the case in our country as there is no money after 10 years of in-built stealing.
We have to look at other sources. Already some of the billionaires have put up money and we must applaud them and be grateful.
The most import thing is for business to keep jobs as best they can even if there are temporary layoffs. It therefore behoves all businesses to try and keep going if they have a chance of sustainability.
So, who is in the position to help business in the formal sector the most? It’s the banks. There has already been a change in regulation of the amounts of assets they need to hold so that they can lend more and I appeal to them that this is their time. Unfortunately, banks manage their clients’ accounts by way of algorithm so it’s not what a senior banker says it’s what the computer says, and many sustainable businesses fail the algorithm test. In the past, banks have adopted a much tougher approach on the business world owing to the economy and of course this affected medium-sized and small business detrimentally.
There are basically 3 business type situations that I wish to set out other than essential service business which remain open:
- Businesses that can work remotely that can continue to run but are sustainable.
- Businesses that were forced to close down as they were dealing with the public, restaurants bars stores etc but they will be sustainable when things open up.
- Businesses that were not doing well prior to lock down owing to economic conditions and needed money anyway in order to survive.
In regard to business type 1 and 2 above they are sustainable, the only problem is that they have a timing difference in their cash flow owing to the lockdown and the uncertainty. Many of these businesses employ people; they have created jobs and do good in the economy and without the help of getting their cash flow timing differences met they may have to close down. They are beyond the help of what is available or their own resources, it’s now up to the banks who know these businesses, to help.
How does the bank make the determination to grant the help needed to bridge the timing difference? They have the big data; the algorithms and they must bring in a team of skills which are surely available to help to make those sustainable businesses that are worth saving survive. This will be extremely beneficial to the future of this country and of course the banks.
This does not mean that banks should rescue businesses that are not sustainable and which are held together by the emotions of their proprietors. If there is no hope, the businesses must be liquidated together with some SOE’s as well. There is no point in throwing good money after bad, the lockdown is just making the inevitable happen sooner.