Major banks in South Africahave started receivingapplications for the re-energized $12bn loan-guarantee scheme which isPresident Cyril Ramaphosa’s centrepiece programme to limit the economic effect of the Covid-19 pandemic fin the country.
The programme first announced in April met with lukewarm response then and it may have failed to take off because of the restrictions on who can benefit.
Under the amended version of the programme, small businesses can now apply for loans of up to $6m regardless of turnover and this has done the magic ofopening the net wider.
The initial phase only considered applications from companies with annual revenue of no more than$18m.
National Treasury, the South African Reserve Bank and commercial banks jointly created the guaranteed loan scheme. The purpose is to help small and medium-sized businesses andprovide much needed boost to the economy.
The $12 billion is beingmade available as new loans to existing customers. The initial phase will be $6billion.
The key features of the Covid-19 loan guarantee scheme are:
- Covid-19 loans will be available from banks to eligible businesses in good standing with their commercial banks.
- Funds borrowed through this scheme can be used for operational expenses such as salaries, rent and lease agreements, contracts with suppliers, etc. Loans will cover up to three months of operational costs and will be drawn down monthly.
- Banks are not obliged to extend Covid-19 loans, and those that do will use their normal risk- evaluation and credit-application processes. Andbusiness’ owners may be required to sign surety for the loan.
- Each business may accept only one Covid-19 loan.
- Covid-19 loans will be offered at a single, agreed lending rate by all banks participating in the scheme. The rate will track the repo rate.
- A six-month repayment holiday will commence from the first drawdown, although interest will accumulate from the date on which the first drawdown on the loan occurs.
- Repayment of interest and capital starts after six months and businesses have a maximum of 60 months to do so. Borrowers can repay the loan ahead of schedule.
The scheme works on the principle that profits and losses are ultimately shared between government and the banks. The scheme will receive all ‘profits’ on the loans, i.e. the difference between the rate at which banks lend the money (together with limited costs).
This will include a guarantee fee charged to the banks in relation to the scheme.
These profits will be used to offset any losses that the scheme makes. If the scheme suffers any further losses, these will be absorbed by the banks themselves, capped at 6 per cent of the size of the loan. Any further losses will ultimately be covered by the fiscus.
