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Treasury and banks to monitor loan guarantee scheme

As R200bn initiative essentially snubbed by businesses battling against Covid-19 headwinds.
Government’s big intervention to help save businesses and jobs has been at risk because the initial requirements were too onerous. Image: Shutterstock

National Treasury and the Banking Association of South Africa (Basa) have committed to having ongoing engagements regarding the design of the R200 billion Covid-19 loan guarantee scheme, which has seen an uptake of just 7% since it was launched in May.

In an update released on Thursday, Treasury said it hopes small and medium businesses will have more appetite to take up loans from the guarantee scheme, which has disbursed R14 billion to nearly 10 000 businesses since August 1. 

Another 15 000 applications are still being processed by the banks.

Read:
Covid-19 loan guarantee scheme to ‘oil’ SA economy – Mboweni
Government’s miserable small business assistance put to shame by private sector

Open to change

“The banking industry’s ongoing openness to discuss design improvements is particularly appreciated, and I note that many countries have adjusted the design of their respective schemes from time to time to respond to changing circumstances,” said Finance Minister Tito Mboweni. 

“We will continue to evaluate the scheme and make changes to improve it,” he added.

The update comes after a meeting that saw Treasury, Basa and the South African Reserve Bank (Sarb) assess the various interventions employed by the banking sector to support the economy, especially in the country’s move to Level 2 lockdown.

Read:

Last month changes were made to some of the criteria to make it easier for businesses to access the scheme, after concerns were raised that the initial requirements were too onerous and would result in government’s biggest economic support intervention not having the desired impact of saving small businesses and jobs.

Treasury has provided an initial R100 billion guarantee to participating banks through the Sarb. Should the demand be a greater, there is an option for this to be extended to R200 billion.

The changes included the introduction of business restart loans to help businesses reopen their operations as economic restrictions were eased. Banks were given an allowance to use at their discretion when conducting credit assessments, and no suretyships are “explicitly” required in terms of the scheme. 

The turnover cap has been replaced with a maximum loan amount of R100 million. Banks may also provide syndicated loans for amounts larger than R50 million. 

Loans are now also available over a longer term, with the drawdown period extended from three to six months. 

Low demand

“Firms are reluctant to take on additional debt,” said Treasury. 

“However, the recently announced move to Level 2 [will] support the reopening of significant parts of the economy. With firms adjusting to the next stage of the Covid pandemic, it is hoped that the economic recovery will strengthen and the demand for credit will improve.”

The banks say one of the major reasons for the low uptake is the debt payment relief the banks provided at the beginning of the National State of Disaster.

By the end of the first week of August, they had provided voluntary payment relief on loans to the value of R537 billion, which was partly supported by the regulatory changes made by the Sarb’s Prudential Authority. 

Basa has also called for Covid-19 relief measures to be underpinned by structural reforms touted by Mboweni for the country’s economic recovery.

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I am not surprized at all that the scheme has flopped spectacularly.

The super duper R200 billion Covid-19 loan guarantee bonanza extravaganza scheme is just a fancy name for an ordinary bank loan at an ordinary interest rate that must be repaid over an ordinary loan period.

I can just as well take out a loan from Frikkie’s Loansharks in Parow Valley.

When you, as a businessman, review theses so called Covid -19 economic relief measures from our government, you realize, haai shame man, these politicians may want to help, but they are utterly clueless and have definitely never run any businesses themselves.

So I say, keep your fancy loan scheme and rather offer the R200 billion to Ace Magashule & sons. I have no idea how many BMW’s they will buy, but at least some of the money will go back to SARS in the form of tax.

Speaking of SARS, 31 August is provisional tax day ! SARS, my friends, I have some very bad news for you, LOL. There is no money for you LOL. Jislaaik I feel terrible, hey LOL. Please phone my business’ call centre and take a number. Your call is important to us and will be answered in approximately 488 days 7 hours and 29 minutes.

Please pass my best onto Frikkie in Parow when you see him again

I borrowed one of his sharks but the poor thing died of frost bite in my freezer

Yep.just an ordinary bank loan.theyre trying to sound important.

“Low uptake????” Really? You mean a low approval rate by the banksters. You are completely wasting your time applying for one of these loans, if your business is in trouble.

SA is bankrupt….how on earth can the ANC government guarantee a loan that is in essence actually provided by the banks? so yes it is “just a fancy name for an ordinary bank loan at an ordinary interest rate that must be repaid over an ordinary loan period”

What businessman in their right mind would sign up for a loan where the bank required them to sign personal surety for the entire amount when the bank’s exposure was only 7% with the balance guaranteed by government?

Currently, it’s nearly impossible to predict a company’s short to medium-term survival prospects; taking out a loan to cover running costs to string it along for a couple more months before collapse is an insane risk if it means director-shareholders could lose their personal assets as well as their business. It defeats the entire point of a limited liability company.

I’m sure I’m not the only director of a small to medium company who had a look at this thing and decided they’d rather take their chances in the free market.

I don’t expect the banks or government to ‘get’ this. Banks are far removed from competitive grassroots commerce, and government knows nothing about it at all.

Agreed. Also self funded and am now at the stage of retrenching staff rather than taking the risk of adding debt into an already toxic mix.

End of comments.

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