R100bn Covid-19 loan scheme now operational

A partnership between Treasury, Sarb and banks aimed at saving SMEs.
Image: Moneyweb

The R100-billion Covid-19 loan guarantee scheme announced by President Cyril Ramaphosa in April will operate from Tuesday (today).

The Covid-19 loan guarantee scheme will see participating banks – Absa, First National Bank, Investec, Mercantile Bank, Nedbank and Standard Bank – consider loan applications for “distressed businesses which bank with them”.

Under the scheme businesses with a turnover of less than R300 million a year can apply for a loan, pending certain conditions like being up to date on other payments with their bank.

National Treasury will provide a loan guarantee of R100 billion. This guarantee can be increased to R200 billion if necessary.

Funds borrowed through this scheme can be used for expenses such as:

  • Salaries,
  • Rent and lease agreements,
  • Utilities
  • Contracts with suppliers, etc.

Businesses may not use these loans to pay:

  • Dividends
  • Make investments,
  • Pay bonuses or
  • Pay off other loans that the business may have

Government and commercial banks are sharing the risks of these loans. The South African Reserve Bank (Sarb) takes the financial risk in the scheme, as its loans to the banks are guaranteed by Treasury.

If a business defaults on a loan, banks can claim on the guarantee from Sarb, which will, in turn, claim the funds from Treasury. This will only happen after banks have followed the procedure outlined above and their standard recovery processes. If a bank initiates such a claim, Sarb will require an independent audit to ensure that sound lending practices were applied.

The loan guarantee scheme is intended to help small and medium-sized businesses.

“While these arrangements are designed to encourage banks to lend more than they would otherwise lend, banks are expected to make sound lending decisions and avoid reckless lending, said Treasury.

“The intention is not for banks to make a profit from these loans. Any net profits will be pooled to offset losses in the scheme, so as to minimise total losses to South African taxpayers.”

More details on the scheme can be found in a frequently asked questions guide posted here: treasury.gov.za, resbank.co.za and Banking Association SA

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guys (at the bank) do not waste time:

you and sars and everybody else knows all our account numbers,
where we live, our cell numbers, you record all our conversations,
so just deposit half of what i can get into my account with the highest overdraft, send the other half to sars,
and we done.

Thank YOU

And the interest rate is………………..???

Prime – currently 7.75%

Good lending practices, so bank won’t lend because the business isn’t expected to survive anyway? So what is the point of the guarantee?

If this scheme could solve the problems that were created by lockdown, then it should have been possible for SAA and Eskom to borrow their way to prosperity. Nothing can correct the disastrous decision to put the economy in lockdown. Politicians implement lockdown measures and they send the invoice to the entrepreneurs.

The socialist who is dependent on a handout from the government, the employee at the government department, SOE and municipality, as well as the teacher and the minister, tell others that “saving lives is more important than the economy”, while they sit in their cushy jobs and receive their inflated salaries….from the economy.

These ignorant individuals are not only biting the hand that feeds them, but they are also killing the one who feeds them. They will soon realize that it is the economy, and not the government, that saves lives.

The logical outcome of this is that many businesses that do not actually need the funds will get funds. As the taxpayer is underwriting this we need covenants on issues such as dividend freeze, cancellation of salary bonuses or increases, share buybacks, swapping of higher interest pre existing loans to the cheaper loans.

We also need a cap on raising fees as there should be none on guaranteed loans!

I not very comfortable with this putting more business into debt, i hope these loans are interest free 0%, if not than i don’t see much of a helping hand from this initiative.

End of comments.

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