Govt, banks working to make COVID-19 loan scheme more accessible – BASA

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The National Treasury, SA Reserve Bank and commercial banks are working to make the COVID-19 loan guarantee scheme more accessible to businesses, the Banking Association of SA (BASA) said on Thursday.

President Cyril Ramaphosa announced the scheme in April as part of the government’s R500 billion economic and social response to the COVID-19 pandemic.

It provides loans, substantially guaranteed by the government but with some of the risk shared by banks, to eligible businesses hit by the pandemic. It was started with a R100 billion guarantee with an option to extend to R200 billion if required.

BASA said as of 29 August, 35 percent of loan applications had been rejected because they did not meet the eligibility criteria or banks’ risk criteria. Reasons include businesses not being in “good standing” or applying for loan amounts that were too high.

Making scheme more accessible

“Banks, along with the Reserve Bank and National Treasury, are continuing to review the reasons for the rejection of loan applications with a view to making the scheme even more accessible while balancing the risks to taxpayers,” BASA said.

Banks have provided R14.54 billion in loans under the scheme so far, BASA said. 25 percent of applications have been approved and 37 percent are currently being assessed. Banks have been granted greater flexibility when assessing businesses’ ability to repay loans.

“The date from which businesses are considered to have been in ‘good standing’ – having a good record of paying their debt – was also moved back to 31 December, 2019, which made more enterprises eligible for the COVID-19 loan guarantee scheme, as the South African economy was in recession well before the onset of the pandemic and the national lockdown,” the Association added.

BASA said it expects loan applications to “peak soon” because of the prevailing economic conditions. Banks are likely to provide between R24.41 billion and R43.74 billon in loans by January 2021.

It however noted that business owners are reluctant to incur more debt. “The slow pace of economic reform, an unreliable electricity supply and lack of inclusive growth, with the resulting weak consumer and business confidence, has also reduced opportunities for enterprise and the need for credit,” it added.

‘Banks need to lose criteria’

Speaking during an engagement with the SA National Editors’ Forum earlier this week, President Cyril Ramaphosa expressed concern that less than R15 billion had been granted so far.

“The banks need to loosen the criteria so that we can get businesses to function again. It does not help the economy of our country if businesses are not functioning,” he said.

The government made changes to the scheme in late July to make it easier for businesses to access the loans. The changes include:

  • Business restart loans will now be available to help businesses that are able to begin operating as the economy opens up.
  • Bank credit assessments and loan approvals will be more discretionary and less restrictive.
  • Businesses can now access loans over a longer period. The draw down period has been extended from three months to a maximum of six months.
  • The interest and capital repayment holiday has been extended from three months to a maximum of six months after the final draw down.
  • 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.
  • 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.

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