Over R18 billion in loans distributed to businesses through the Covid-19 loan guarantee program


IN JULY, the Covid-19 loan guarantee scheme, which was supposed to provide financial relief to businesses, ended. But what was the success?

In a recent parliamentary question-answer session, President Cyril Ramaphosa said the project had been disappointing.

The program was intended to provide loans, substantially guaranteed by the government, to eligible businesses that were in good standing with their banks at the end of December 2019, registered with the SA Revenue Service and in financial difficulty due to the Covid outbreak. -19 and subsequent confinements.

Funds borrowed from this program, through the banking sector, could be used for operational expenses, such as salaries, leases and leases and contracts with suppliers. The loans were granted at a preferential rate (premium) and repayment could be deferred for a maximum of one year after taking out the loan. The companies would then be required to repay the loan over five years.

Banks were not allowed to profit from these loans and any surplus generated would revert to the national treasury. The government and the commercial banks shared the risk of non-repayment of these loans. The National Treasury initially provided R100 billion to the banking sector through the South African Reserve Bank, with the option of expanding the program to R200 billion if necessary.

The Banking Association South Africa (Basa) said the program has been successful in helping qualified businesses stay operational and save jobs.

As of June 25, participating banks had granted 13,324 loans worth over R18 billion to eligible applicants. At the time, the system had received 50,717 loan applications, of which only 26%, or 13,324, were approved by the banks and taken over by the applicants.

Basa said many of the financial and business challenges facing small businesses predate the pandemic and were caused, among other things, by a weak economy, power outages and uncertain business conditions. Many business owners were reluctant to take on more debt in a weak and uncertain business environment, reducing demand for the program.

“The Covid-19 loan guarantee program was only a small part of the relief that banks were giving their customers and financially troubled customers. Figures released to the South African Reserve Bank indicate that as of February 2021, banks had provided R293 billion in financial assistance to their clients and clients – businesses: R165 billion, retail: R128 billion rand – representing 5.8% of total corporate and personal credit exposure. ”, Said Basa.

He said he called for the reduction of bureaucracy and political uncertainty to make doing business easier, especially for small and medium-sized businesses. Facilitating entrepreneurship and small business development was one of the safest and fastest ways to spur inclusive economic growth and job creation.

Small Business Institute (SBI) chief executive John Dludlu said the program had played its part and the country had learned what was possible and impossible to achieve.

“The priority now is to continue supporting SMMEs in light of the continued lockdown, as some businesses were not yet performing optimally,” Dludlu said.

The immediate focus was on SMMEs which had been devastated by the looting that took place in July in KwaZulu-Natal and Gauteng.

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