Covid-19 Loan Guarantee Scheme Update

As at 08 May 2021, R18,35 billion in loans had been approved by banks and taken up by small businesses under the Covid-19 Loan Guarantee Scheme, an increase of R12,60 million over the previous two weeks.

Although the Covid-19 Loan Guarantee Scheme will remain in operation until 11 July 2021, based on present trends, banks expect demand for the scheme to drop even further in the coming months. The scheme was mainly extended to allow those who have qualified for a loan to continue to access their funds and for applications in process to be finalised.

The extension of the scheme was not expected to result in an increase in applications. There has been little demand for the Covid-19 loans since the beginning of the year. Qualifying business owners remain reluctant to take on more debt in a weak and uncertain business environment; or they have made their own financial relief arrangements directly with their banks.

The Loan Guarantee Scheme is only a small part of the relief that banks offer their clients and customers who are in financial distress. Figures reported to the South African Reserve Bank, indicate that as at February 2021, banks had provided R293 billion in financial relief to their customers and clients (corporate: R165 billion; total retail: R128 billion), which accounted for 5.8% of the total
corporate and retail credit exposure.

Many of the financial and business challenges facing small enterprises pre-date the Covid-19 pandemic and were caused by a weak economy and uncertain business conditions. Small businesses in financial distress prefer grant or equity funding, rather than credit that they may struggle to repay.

Given the lack of demand for Covid-19 loans, BASA would welcome the opportunity to work further with National Treasury to leverage state grants and equity funding in support of small businesses. BASA has also called for the reduction of red-tape and policy uncertainty, and for it to be made easier to do business, especially for small and medium enterprises. Facilitating entrepreneurship and small business development is among the surest and fastest ways to boost inclusive economic growth and job creation, without having to introduce new programmes and additional spending.

Until 08 May 2021, the scheme received 50 344 applications for loans, of which 26% were approved by banks and were taken-up by the applicants. Two percent of the applications are still in the process of being assessed.

Fifty-six percent of applications received so far were rejected because they did not meet the eligibility criteria for the scheme, as set out by the Treasury and the Reserve Bank, or because they did not meet banks’ risk criteria. The main reasons for rejection are that the requested value of the loan was too high for the business to be reasonably expected to be able repay it; or the enterprise was not in good financial standing before the pandemic. Government never envisaged the Loan Guarantee Scheme to provide grants and qualifying recipients must be able to repay the loan. Eighty-two percent of the loans approved – with a value of R6,77 billion - went to enterprises with a turnover of up to R20 million. The average value of a loan under the scheme is R1,23 million.