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Simplified access to COVID-19 Loan Guarantee Scheme

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The COVID-19 Loan Guarantee Scheme has been reviewed to make it easier for businesses to access, National Treasury said.

The scheme was set up to help alleviate pressure experienced by qualifying businesses being negatively affected by low economic activity as a result of the global lockdown.

In a joint statement with the South African Reserve Bank (SARB) and the Banking Association of South Africa (BASA), Treasury said some of the changes include that bank credit assessments and loan approvals will be more discretionary and less restrictive, in line with the objectives of the scheme.

Additionally, clients are now being able to access the loan over a longer period.

The scheme provides loans, largely guaranteed by government but with some of the risk shared by banks, to eligible businesses to assist them during the COVID-19 pandemic.

Funds derived from this scheme, through the banks, can be used for operational expenses such as salaries, rent and lease agreements, and contracts with suppliers.

Loans are granted at a preferential rate (prime) and repayment may be delayed for a maximum of one year after taking out the loan.

Businesses will then be required to repay the loan over a period of five years.

Government and commercial banks are sharing the risk of non-repayment of these loans.

“National Treasury initially provided an R100 billion guarantee to participating banks through the South African Reserve Bank, with the option to extend the scheme to R200 billion, if required. Government is engaging with non-bank lenders in order to possibly extend the scheme,” Treasury said.

These changes have been implemented:

  • Business restart loans will now be available to assist businesses that are able to begin operating as the economy opens up.
  • Bank credit assessments and loan approvals will be more flexible and less restrictive, consistent with the objectives of the scheme. Banks may use their discretion on what financial information required (eg. bank or financial statements, where audited statements are not available). Additionally, Suretyships or guarantees may also be required. The provisions of the National Credit Act and Financial Intelligence Centre Act remain applicable.
  • Clients now have access to the loan over a longer period. What was previously 3 months has been expended to a maximum of 6 months. For example, an R6 million loan can be drawn down over six months, at R1 million a month if the business qualifies. The size of the loan is still calculated on operating expenses.
  • The interest and capital repayment holiday have also been extended from 3 months to a maximum of 6 months following the final drawdown. For example, in the case of the same R6 million loan, drawn down at R1 million a month for six months, repayments will only be required from month 13.
  • The turnover cap has been replaced with a maximum loan amount of R100 million. Banks may also provide syndicated loans for loans larger than R50 million.
  • The test for good standing has been made easier. This has now moved back to 31 December 2019 from 29 February 2020 to accommodate firms that were already experiencing cash-flow problems in February.
  • Sole proprietorships are now explicitly included. For sole proprietorships and small companies, salary-like payments to the owners (drawings) are included in the use of proceeds. Security, suretyships, or guarantees are not explicitly required.

The treasury went on to say that eligible businesses should contact their primary or main banker for further information on the scheme and the qualifying criteria.

While this scheme operates through banks willing to take some of the risks of lending to client companies in distress, Treasury said the government is also exploring the option of working with non-bank lenders willing to share the risks of lending to their client companies in distress.

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