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Kwanalu

The voice of agriculture . Die stem van landbou . Izwe lezokulima

COVID-19 LOAN GUARANTEE SCHEME: WHAT YOU NEED TO KNOW

The COVID-19 Loan Guarantee Scheme is aimed at supporting small and medium businesses who have lost significant income as a result of the steps taken by the South African government to curb the spread of COVID-19. Announced by President Cyril Ramaphosa as part of the R500 billion stimulus package, the details of the scheme were agreed by the National Treasury, the SA Reserve Bank and the Banking Association of SA (Basa) in May.

The National Treasury has provided an initial guarantee of R100 billion to the scheme and it has indicated there is an option to increase the guarantee to R200 billion if necessary and if the scheme is deemed successful.

The scheme will provide government-guaranteed loans through participating banks to firms with an annual turnover of less than R300 million. The loans will improve business liquidity and help these businesses stay active for the duration of lockdown restrictions and return to being economically productive once all restrictions are lifted. In the longer-term, its objective is reviving the economy and preserving jobs.

How it works

The National Treasury, South African Reserve Bank and commercial banks represented by the Banking Association South Africa, have agreed on the relevant legal framework, and financial and operational requirements.

The National Treasury provides a guarantee to the Reserve Bank, which records the guarantee as a contingent liability on the government’s account. The Reserve Bank will then lend the money to commercial banks at the repo rate (currently 3.75%) plus a 0.5% guarantee fee.

Banks will lend this money to qualifying small and medium-sized businesses at the repo rate plus a fixed spread of 3.5%. Each applying business may get only one loan under the scheme and they have five years to repay the loan.

The Reserve Bank is the administrator of the scheme and it will publish an annual report setting out how much each bank has used from the scheme and the performance (default rate) of each bank’s COVID-19 loan portfolio.

The government and commercial banks are sharing the risks of these loans and while the arrangements are designed to encourage banks to lend more than they would otherwise lend, the Treasury still expects banks to make sound lending decisions and avoid reckless lending.

Treasury said the intention is not for the banks to make a profit from the loans. It said any net profits would be pooled to offset losses in the scheme to minimise total losses to SA taxpayers.

Which banks are participating?

Absa, First National Bank, Investec, Mercantile Bank, Nedbank and Standard Bank are accepting loan applications from eligible businesses which bank with them.

Which businesses qualify?

To qualify for the COVID-19 Loan Guarantee Scheme a business must:

  • have a group annual turnover of less than R300 million
  • have been up to date with its loan payments to the relevant bank or be an account holder without any loans at the relevant bank as at end-February 2020
  • have an existing relationship with the bank that grants it the COVID-19 loan
  • be registered with SARS
  • be financially distressed as a result of the COVID-19 outbreak and subsequent lockdowns