Among other things, bank credit assessments and loan approvals will be more discretionary and less restrictive
THE COVID-19 loan guarantee scheme set up to help ease the pressure on qualifying businesses affected by low economic activity following the lockdown imposed to curb the spread of the disease has been reviewed to make it easier to access, the National Treasury said on Sunday.
Among other things, bank credit assessments and loan approvals would be more discretionary and less restrictive, in line with the objectives of the scheme. In addition, clients are now able to access a loan over a longer period, the Treasury said in a joint statement with the South African Reserve Bank (SARB) and the Banking Association of South Africa (BASA).
The scheme provides loans, substantially guaranteed by government but with some of the risk shared by banks, to eligible businesses to assist them during the Covid-19 pandemic. Funds borrowed from this scheme, through the banks, can be used for operational expenses such as salaries, rent and lease agreements, and contracts with suppliers.
The loans are granted at a preferential rate (prime) and repayment may be deferred for a maximum of one year after taking out the loan. Businesses will then be required to repay the loan over five years.
Government and commercial banks are sharing the risk of non-repayment of these loans. The National Treasury initially provided a R100 billion guarantee to participating banks through the SARB, 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,” the statement said.
Following a review of the scheme, certain changes had been made:
– Business restart loans would now be available to assist businesses able to begin operating as the economy opened up.
– Bank credit assessments and loan approvals would be more discretionary and less restrictive, in line with the objectives of the scheme. Banks could use their discretion on financial information required, for example bank or financial statements, where audited statements were not available. Suretyships or guarantees could also be required. The provisions of the National Credit Act and Financial Intelligence Centre Act remained applicable.
– Clients could now access the loan over a longer period. The draw down period had been extended from three months to a maximum of six months. For example, a R6 million loan could be drawn down over six months at R1 million a month if the business qualified. The size of the loan was still calculated on operating expenses.
– The interest and capital repayment holiday had been extended from three months to a maximum of six months after the final draw down. For example, in the case of the same R6 million loan, drawn down at R1 million a month for six months, repayments would only be required from month 13.
– The turnover cap had been replaced with a maximum loan amount of R100 million. Banks could also provide syndicated loans for those larger than R50 million.
– The test for good standing had been made easier. This had now moved back to December 31, 2019 from February 29, 2020, which would accommodate firms which were already experiencing cash-flow problems in February.
– Sole proprietorships were now explicitly included. For sole proprietorships and small companies, salary-like payments to the owners (drawings) were included in the use of proceeds. Security, suretyships, or guarantees were not explicitly required.
Eligible businesses should contact their primary or main banker for further information on the scheme and the qualifying criteria. While the scheme operated through banks’ willing to take some of the risks of lending to client companies in distress, government was also exploring the option of working with non-bank lenders willing to share the risks of lending to their client companies in distress, the statement said.
– African News Agency (ANA)