4 Reasons for Informal Businesses to Open a Bank Account

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Naledzani Mosomane: Head, Enterprise Development, Standard Bank Business and Commercial Clients


Bank accounts offer small businesses a lifeline in difficult times

Entrepreneurs are the lifeblood of the South African economy and are central to the country reaching its growth and development potential.

While small and medium-sized enterprises (SMEs) across South Africa represent: 98% of businesses and employs more than half of the country’s workforcethey also run the greatest financial risk.

The COVID-19 pandemic and the recent economic downturn have put a strain on SMEs across South Africa, especially informal businesses that rely almost exclusively on cash.

In difficult times, “moving away from cash to banking can help informal businesses become safer, more profitable and more efficient,” said Naledzani Mosomane, Head of Enterprise Development at Standard Bank South Africa.

Mosomane shares four reasons for small businesses to open a bank account.

1. When you bank, you earn more, work better and save more

Statistics don’t lie. The World Bank reports that formalizing a business improves productivity, makes it more profitable and provides access to finance.

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Salaries in formal companies are also average 19% better employee salaries compared to wages in the informal economy.

“Using a bank account is one of the most important steps in formalizing your business, and as we have said in the pastkeeps your money safe, lets you earn interest on income, makes money more accessible and helps you reach your financial goals faster,” says Mosomane.

2. A bank account provides the financing and access to advice, the key to building bigger, better companies

In sub-Saharan Africa, 51% of companies have no access to financing. However, having a bank account means that SMEs can access mixed financial solutions such as concessional debt and grants for technical assistance alongside equity, allowing SMEs access to third-party capital without going bankrupt themselves.

At Standard Bank, “we have deliberately developed a range of non-banking solutions that empower enterprises.”

“For example, our virtual Enterprise Direct environment provides entrepreneurs with a team of business bankers and specialists who understand the needs of SMEs and are able to match companies with the right set of solutions,” says Mosomane.

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3. Having a bank account means having an institution that cares on demand

During the COVID-19 pandemic, SMEs and other smaller businesses struggled to survive lockdowns, shutdowns and hybrid work models.

Most banks around the world, on the other hand, offered their customers financial support and emergency measures. Basically, SMEs with bank accounts were assisted by their bank to survive disruptions, or switch to new products or services.

“At Standard Bank, our top Covid priority has been to support our corporate clients to continue to manage their financial obligations and honor payments to their employees.”

“We offered a three-month moratorium on loan payments, loan extensions, restructuring and payment holidays. It wasn’t easy, but we knew we had to work as fast as our customers to make sure they survived,” says Mosomane.

4. Bank accounts provide access to digital solutions that streamline your work

McKinsey’s report on how banks can better serve SMEsshows that banks in general help SMEs with product innovation while strengthening their digital channels.

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Mobile credit options and other sector-specific digital solutions available through banks are key to helping SMEs and even smaller businesses succeed.

Standard Bank’s digital business model has virtual capabilities so that “they always have access to a team of investment bankers who can help and guide them regardless of the size, revenue and location of a client company,” Mosomane says.

In short, a bank account provides small informal businesses with access to capital, advice and technology essential to their survival by incorporating them into the formal economy.

A bank account “also widens the playing field between small and larger businesses by increasing the ability of small businesses to increase their weight and compete effectively with the big boys,” Mosomane concludes.

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