With the rand currently trading at over R13 to the U.S. dollar and over R20 to the British pound, our currency has hit a new low.
The weakening of the rand affects all South African businesses and foreign investors. However, the effects can be particularly damaging for small businesses, which often lack the resources to weather prolonged economic challenges.
The decline of the rand
2014 was a rough year for the South African rand, and 2015 proved even rougher.
According to economists, a number of factors have played a role in the declining value of the rand. One of these is that the US economy has entered a tighter monetary environment, which bolsters the dollar and pulls capital away from emerging markets. A fall in global commodity prices has also negatively impacted the currencies of commodity-producing countries, such as ours.
Other factors include the increasing price of crude oil, a lack of foreign investment, an increased current account deficit, a struggling manufacturing sector, strikes (specifically in the mining industry), the on-going power crisis, insufficient local savings and a weak gross domestic product.
The negative effects for small businesses
The weak rand has had dire consequences for many South African businesses. While larger companies often have the infrastructure, client base and capital to survive in times of economic hardship, small businesses may lack the resources to do so.
Small companies that import items or have to make payments in foreign currency are obviously affected most directly. However, there are indirect effects too.
As the rand declines in value and crude oil prices rise, our petrol prices go up. In turn, this causes high inflation and ultimately reduces the amount of money that businesses can make. The rising price of oil also has a direct impact on businesses in transport and logistics, where petrol prices affect operational costs.
Reduced foreign investment means fewer opportunities for local businesses. When times get tough, it also gets trickier for small businesses to obtain bank loans and other types of funding.
If you’re having trouble making ends meet, you may need to consider an alternative form of funding that’s quicker to access than a standard business loan. Securing asset-based funding, like the funding offered by Lamna, involves using a valuable asset as collateral to secure a short-term loan. Once you repay the loan and interest at the agreed rate, the asset is returned to you.
Advantages are that the funding is available almost immediately, the process is confidential and you don’t need a spotless credit record to qualify.
Client borrows R10,000 for 90 days.
Total Cost of Loan
Fixed rates range from 36% to 60% APR and payment options range from minimum 3 to maximum 24 months. Apart from the initiation and monthly fees shown below, the only additional fee is credit life insurance if the borrower does not have this already.