HAS THE SOUTH AFRICAN RESERVE BANK AND NATIONAL TREASURY IN ASSOCIATION WITH BANKING ASSOCIATION SOUTH AFRICA PROVIDED ANY RELIEF MEASURES OR INTERVENTIONS TO SMALL AND MEDIUM ENTERPRISES AFFECTED BY COVID-19?

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Published: May 14, 2020

Yes the South African Reserve Bank and National Treasury in association with the Banking Association South Africa has provided relief measures for Small and Medium Enterprises affected by COVID-19.

 

On 29 April, the Banking Association South Africa (BASA) in association with the South African Reserve Bank (SARB) and National Treasury outlined the COVID-19 Loan Scheme for Small and Medium Enterprises.

The loan guarantee scheme is an initiative to provide loans, guaranteed by government, to eligible businesses with an annual turnover of less than R300 million to meet some of their operational expenses. Funds borrowed through this scheme can be used for operational expenses such as salaries, rent and lease agreements, contracts with suppliers, etc.

The said loan guarantee scheme went live on 12 May 2020. The initial set of participating banks (Absa, First National Bank, Investec, Mercantile Bank, Nedbank and Standard Bank) are accepting loan applications from eligible businesses which bank with them.

The activation of the loan guarantee scheme follows the finalisation of legal details by National Treasury, the South African Reserve Bank and the Banking Association South Africa.

 

For further information regarding the said scheme, please click here.

 

To access the media statement released by National Treasury on 12 May 2020, please click here.

 

What is it for?

The R200 billion COVID-19 loan scheme is the outcome of the South African Reserve Bank (SARB) and the National Treasury partnering with members of the Banking Association South Africa (BASA) to help small and medium enterprises, support the economy and save jobs. The scheme will allow qualifying businesses to apply for loan funding from their primary bank for three months of operational costs, such as salaries, rent and supplier payments. All loans will be subject to bank credit approvals.

 

What is it?

The R200 billion COVID-19 loan scheme is a special credit facility that is being disbursed on behalf of SARB and National Treasury, using the infrastructure of the banking industry. Risk-sharing mechanisms in the scheme balance the need for government to support qualifying businesses, with ensuring the continued safety and soundness of the banking system. Government and commercial banks are sharing the risks of these loans. Initially, the National Treasury has provided a guarantee of R100 billion to this scheme, with the option to increase the guarantee to R200 billion if necessary and if the scheme is deemed successful. Eligible businesses should contact their primary or main banker.

 

Funding Terms

Funding for these COVID-19 loans will be provided to banks by the SARB through a special financing mechanism. Any losses on the loans will first be offset against any margins earned on a bank’s portfolio of COVID-19 loans. Losses thereafter will be offset against a guarantee fee payable to the National Treasury by banks. Any further losses thereafter will be shared, with the first six percent being absorbed by the banks and the net balance absorbed by the National Treasury.

 

Each bank will sign a bilateral agreement with the SARB, covering their participation in the scheme. The SARB will in turn contract with the National Treasury.

 

The scheme – which will start with an initial R100 billion – will be launched as soon as all the necessary legal agreements are in place. All parties are working around the clock to implement the scheme as quickly as possible after these agreements are finalised.

 

Funding Principles

While the finer details of the COVID-19 loan scheme and the related application process are still being finalised, the following principles will apply:

  • The COVID-19 loan scheme is a commercial arrangement and requires a credit application process, through which banks must evaluate if the business will likely be able to service all its commitments after the pandemic and lockdown. Banks are not obliged to extend COVID-19 loans and business owners may be required to sign surety.
  • The size of the COVID-19 loan will be calculated on the three-month funding requirement of certain operating expenses of the business, as approved by the bank, to be disbursed in monthly tranches.
  • Banks will not profit from the provision of the SARB guarantee. However, the administrative cost of facilitating the loans and the cost of capital will be recovered.
  • In the event of default, the COVID-19 loan would be subordinated to all other creditor claims.
  • The repayment of shareholder loans or dividends, using these funds, is expressly prohibited.

 

Qualifying Criteria:

To qualify for the standardised COVID-19 loan, businesses, including sole proprietors, must inter alia:

 

  • Have a turnover under R300 million per annum
  • Be in good standing with their bank, prior to the onset of the Covid-19 pandemic
  • Be registered with the tax authority
  • Have insufficient normal borrowing capacity to fully fund its monthly operating expenses
  • Be adversely impacted by the lockdown.

 

Application Process:

Companies that may qualify for a COVID-19 loan, are advised to contact their primary bank.

During the initial phases of the scheme, some processing backlogs will be inevitable. Banks undertake to work through these as quickly as possible and ask clients to be understanding of the challenges our staff have operating in the lockdown.

 

For FAQs pertaining to the said scheme, please click here.

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