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COVID-19 relief for SMMEs in South Africa

09 April 2020 Olivia Radford, Norton Rose Fulbright

Many businesses are struggling to stay afloat because they either cannot operate under the COVID-19 lockdown or the volume of their output has diminished substantially. The SMME Debt Relief Finance Scheme, the South African Future Trust and the Sukuma Relief Programme have been created to assist SMMEs with their difficulties. Many banks are offering clients payment holidays and tax relief measures are also available.

SMME Debt Relief Finance Scheme

What is it?

This is a fund established and administered by the Department of Small Business Development. It will provide soft-loan funding for a period of 6 months, from 1 April 2020.

It is aimed at providing relief on existing debts and payments, and to assist entities to acquire raw material, and to pay labour and operational costs. All these interventions will be structured to match the patterns of the SMME’s cash flows, as well as the extent of the impact experienced due to the COVID-19 pandemic.

The application form for the SMME Debt Relief Finance Scheme was released online on Thursday 2 April 2020.

Who is eligible?

SMMEs that were registered with the Companies and Intellectual Property Commission (CIPC) by 28 February 2020 can apply for relief, if the business is 100% owned by South African citizens and at least 70% of their employees are South African citizens. The business must also be registered and compliant with SARS and UIF.

The Scheme will give preference to businesses owned by women, youth and people with disabilities.

Application process

The business must register on the National SMME Database and complete the online application form.

Supporting documents must be uploaded, which include:

  • Proof that the business is negatively affected by the COVID-19 pandemic (the link between the distress and the pandemic should be made clear);
  • The company’s statutory documents;
  • FICA documents (such as municipal accounts, or a letter from a traditional authority for businesses based in rural areas);
  • Certified ID copies of the company’s directors;
  • 3 months of bank statements;
  • Latest annual financial statements or latest management accounts not older than three months from date of application;
  • The business profile;
  • 6 months cash flow projections;
  • Copy of lease agreement if applying for rental relief;
  • If applying for payroll relief, details of employees – as registered with UIF and including banking details – will be required as payroll payments will be made directly to employees;
  • Facility statements of other funders; and
  • Detailed breakdown on the application of funds (for instance, salaries or rent).

The South African Future Trust (SAFT)

What is it?

SAFT is an independent trust set up in partnership between the South African government and the private sector. SAFT aims to enable SMMEs to significantly reduce their cash outgoings and continue operations while retaining their employees. SAFT’s immediate purpose is to extend financial assistance to employees of SMMEs who are at risk of losing their jobs or will suffer a loss of income because of COVID-19.

SAFT will transfer funds directly to employees of participating SMMEs, via interest-free loans where employees themselves carry no liability.

The SAFT loans will be interest-free for a five-year period and subordinated to other pre-existing debt. If businesses are unable to repay the loan, SAFT will work closely with SMMEs to ensure that sustainable repayment plans are in place.

The interest-free loan is repayable in full, on or before 31 December 2025. Instalment payments can be made over the course of the 5 years, as determined by the SMME, or as a lump-sum payment on or before 31 December 2025. There will be no penalties for early repayments.

Who is eligible?

SMMEs with an annual turnover of below R25 million who have been trading for at least 24 months and who were viable businesses on 29 February 2020, and have been adversely affected by the COVID-19 pandemic.

Application process

SMMEs should register their interest directly with their bank. Currently this scheme is limited to clients of ABSA, FirstRand Bank, Nedbank, and Standard Bank.

SMMEs must provide the following to their bank, to apply for the scheme:

  • Entity identification (a registration number for a company or a close corporation, a Master’s reference number for a trust, or an ID number and business address for a sole proprietor);
  • A valid PAYE number registered with SARS (if applicable);
  • A valid income tax number registered with SARS; and
  • Confirmation of permanent employment status of employee.

Sukuma Relief Programme

The Sukuma Relief Programme will disburse R1 billion to small businesses.

Applications opened on Friday 3 April 2020 and closed on Tuesday 7 April 2020 because the applications submitted have exceeded the funds available for disbursement.

 

First published by: Posts from Financial Institutions Legal Snapshot 

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