Restricted trading conditions and constrained consumer spending due to lockdown regulations and the devastating economic impact of the pandemic have placed small and medium enterprises (SMEs) under severe financial pressure.

While some sectors have fared worse than others, in general, the formal mid-market SME sector is proving more resilient than informal and smaller SMEs due to better liquidity and easier access to funding.

Regardless of their situation, every business requires cash to continue operations, pay staff and purchase new stock, or see them through prolonged business interruptions.

“Despite facing economic headwinds going into the Covid-19 crisis, established businesses are generally sitting with good cash flow and have equity,” says Sean Jackson, head of business cash solutions at Investec. “As such, we have yet to experience massive cash investment outflows from our mid-market SME clients, but smaller businesses are certainly drawing down, with lower cash reserves on hand.”

Accordingly, continued access to funding remains vital to SME sustainability, while businesses with surplus cash or existing deposits require greater flexibility as business owners navigate an uncertain marketplace amid supply-side and demand-side challenges.

“Business owners want to put surplus funds to work without exposure to unnecessary risk,” says Jackson. “We have, therefore, experienced an increase in requests for better rates as business owners shop around for the best investment options.

“Businesses with cash on hand also seem to be investing more than they used to as they anticipate a protracted period of challenging trading conditions,” he adds.

Financial services providers need to offer competitive rates on deposits, without sacrificing accessibility to secure deposits in this environment.

“In what is a major change in SME behaviour since the pandemic hit, clients generally moved from six-month products to instant access or call accounts, with many looking to benefit should rates start rising again from current all-time lows.”

The threat of new regulations or intermittent lockdown restrictions may necessitate periodic drawdowns to sustain the business. As such, depositors also require the ability to access these funds at short notice and without incurring penalties.

And until a vaccine emerges, SMEs may require capital to invest in digital channel enablement and delivery services to create a relevant and sustainable business model as consumer purchasing habits shift in response to the pandemic.

According to Jackson, finding the appropriate business cash solution to address these requirements requires direct business engagement to determine the unique needs of the business.

“Having appropriate and timely conversations is vital, especially as time to fund is extremely long at present. Business owners should look at all options to ensure they maximise their return on any cash, taking into consideration the market conditions and their liquidity requirements to ensure they are able to navigate this crisis as best as possible.”