By Azwidohwi Mamphiswana
The South African Reserve Bank (SARB) cut the repo rate by 25 basis points to 7.50% last month making borrowing cheaper for small businesses. While this is a welcome move for many entrepreneurs, some are concerned about the long-term effects on the economy and businesses that rely on interest income.
With lower borrowing costs, small businesses can take out loans more easily to refinance debt, expand, or invest in new projects. Financial analyst Sipho Nkosi explains, “Lower interest rates give small businesses room to breathe, especially those struggling with high debt. It can encourage more investment, which might create jobs.”
Thilivhali Mashau, who runs a logistics company in Johannesburg, is relieved by the rate cut.
“I got a loan last year to buy delivery vehicles. With this cut, my repayments might be a bit lower, which means I can use that money to grow my business,” he says. Though the savings may seem small at first, Mashau believes they will help improve cash flow over time.
Lower interest rates also mean that people have more money to spend, which benefits businesses that rely on consumer spending, such as retailers and restaurants. Business analyst Thelma Komana from Tshwane University of Technology explains, “When borrowing costs drop, people can spend more, which usually means higher demand for goods and services. Small businesses can use this to boost sales by improving marketing and stocking up on popular products.”
Restaurant owner Naledi Dlamini expects more customers. “People have been eating out more lately, and I think lower interest rates are a factor. If it keeps going like this, it could be a good year for my business,” she says. Similarly, a boutique clothing store owner in Pretoria is hopeful about increased sales, though she remains cautious about whether the trend will last.
However, not all businesses will benefit. Companies that earn money from interest, like investment firms or those with large cash reserves, could see their returns decrease. Credit expert Johan van der Merwe warns that lower interest rates could lead to inflation. “If borrowing becomes too cheap, it can cause demand to grow faster than supply, leading to higher prices. Small businesses should be careful not to take on too much debt,” he says.
For some small businesses, financing is still a challenge. “A lower repo rate helps, but getting financing is still hard for many small businesses, especially those without a strong credit history,” says Thato Mthethwa, a sales consultant from MaxLaw Credit Legal. She adds that banks are still hesitant to lend to start-ups and higher-risk businesses.
Another concern is how long the lower rates will last. SARB has said future rate cuts depend on inflation trends, meaning rates could rise again if inflation increases, leaving businesses that took on more debt in a difficult position.
While the rate cut presents opportunities for small businesses, its long-term effects will depend on how businesses adapt. Small business owners are encouraged to manage debt wisely, keep an eye on market trends, and take advantage of increased consumer spending for sustainable growth.
