Debate goes back and forth on whether the government are doing the right thing or not but I think we can all agree that balancing the health threat of the virus and the economic repercussions of it, is a damn-near impossible task.
Whilst the debate continues to ravage on, the stark reality is that the poor are going hungry and the middle-class are unable to service their debt. Most financial institutions are offering some sort of payment relief to their debtors and have been inundated with applications since the president first announced the nationwide Lockdown on March 23rd earlier this year. Due to the far-reaching effects of the Lockdown, most businesses and industries are affected in some way. However, there are those individuals and businesses that are taking advantage of the relief system in an unfair manner.
The idea behind the relief measures is to assist those who are facing severe financial strain on their finances due to little or no income during this time. It is not there as a ‘free for all’ option for anyone to take up. I have personally heard of individuals and businesses taking up payment holidays unnecessarily and irresponsibly. If you are able to continue to service your debt during this time, then you must continue to do so. Taking up a payment holiday because you want to take advantage of the situation is putting more strain on the economy and turns you into a dependent of the system rather than a liberator. You are also contributing to the backlog of applications, making turnaround times and eventual relief slower for those that really need it.
What people fail to understand is that for every payment holiday granted, there is a cost implication. Whether it be in the form of additional payments at the end of a loan term or a cash-flow hit swallowed by the bank, there is no such thing as ‘free.’
One also needs to look at what is actually being offered by an institution at this time. Many insurance companies are offering payment breaks in exchange for no cover over the payment holiday period, or are offering customers the chance to cover their fees by using their medical savings accounts. One needs to tread really carefully here, and make wise-informed decisions on whether saving a few thousand Rands now, doesn’t result in losing tens of thousands of Rands (or more) later.
If I look at my personal situation as an example of both sides of the coin, it may put my point of view into clearer perspective. I have a Personal Training business as well as a Property business. My personal training business has been heavily impacted by the shutdown as all gyms have been closed until further notice and all exercise in groups has been forbidden. This has pretty much put a stop to this business’ income for the time being and it only make sense that payment holidays are requested for to protect the longevity of the business and to sustain essential needs.
On the other hand, my property business is a lot more resistant to the current situation. The nature of cash-flow within property is generally one that moves at a slower pace as compared to other businesses. It is not uncommon for property businesses to go months without new income entering into the books. We are used to having large sums of income enter at any given time, that can sustain the cash-flow needs of the business for some time.
This has led to KOURO not requiring to approach its creditors for payment relief as we are able to weather the storm, pay our bills, and most importantly our Members that rely on us for a monthly income. This approach has made us liberators of the system, where we can positively impact the economy and not rely on institutional relief or government funding. This has been further boosted by our ability to make small donations to NPOs that are on the ground feeding hungry families and doing whatever they can to help those in need. We do this because we understand the importance of assisting the nation in getting through this incredibly difficult time in whatever small way we can.
Had we just had the attitude where we would take advantage of payment holidays or deferments to better our cash reserves, we wouldn’t have been able to empower anyone else but ourselves.
I think it is imperative that as many businesses and individuals as reasonably possible take up this approach to help the country find some sort of level ground in order to kick-start and re-build the economy as soon as possible.
What are your thoughts on payment holidays? Do you think everyone should be taking them up, or should they form part of a planned strategy to survive this crisis?
