The Banking Association of South Africa (BASA) reports that as of January 16, 2021, R17.84 billion in loans had been approved by banks and underwritten by small businesses under the Covid Loan Guarantee Scheme. -19.
Announced by President Cyril Ramaphosa in April 2020 alongside other measures, the program aimed to encourage banks to lend more money, on more favorable terms, to companies whose operations had been affected by the pandemic.
Initially, the National Treasury provided a R100 billion guarantee to the program, with the option to increase the guarantee to R200 billion if necessary, if the program was found to be effective.
However, nearly a year later, demand for the program remains significantly below initial expectations — and participating banks expect applications for the program to slow further in the coming months, BASA said.
“This despite an expected increase in financial pressure on small businesses, particularly those in the hospitality and tourism sector due to restrictions placed on their activities under the adjusted Tier Three lockdown regulations.
“Based on current trends, it is likely that only R18.9 billion in loans will be approved under the scheme,” he said.
The association said business owners remain reluctant to take on more debt due to challenges posed by inconsistent policies and regulations, uncertain business conditions and weak economic prospects.
These hamper business owners’ ability to generate sustainable income, which they need to repay the loan, he said.
As part of their normal business, banks offer relief to their customers in financial difficulty. The association said banks will continue to offer their eligible retail, business and corporate customers tailored payment interruptions and debt restructuring assistance.
“For many businesses, this is a better option than the loan guarantee scheme. BASA understands that the Covid-19 loan guarantee program – designed and implemented at high speed in times of crisis – has not achieved everything it set out to do.
“However, the banks’ assistance to their customers and their contribution to the recovery and reconstruction of the economy goes well beyond the Covid-19 loan guarantee program.”
As implementing partners of the loan program, BASA said banks have been tasked with ensuring that taxpayers’ funds are not put at undue risk of loan default.
“Covid-19 loans can only be granted to companies that meet the criteria set by the Reserve Bank and the National Treasury and the banks’ prudent risk management policies.
“The program does not provide grants or equity to businesses in financial difficulty or assist those in distress for reasons other than those related to the pandemic.”
BASA added that only the Reserve Bank and the National Treasury can make changes to the program’s operations and criteria.
The government must come to the party
BASA said the program alone cannot solve all of the financial and business challenges facing small businesses, many of which predate the pandemic and were caused by a lack of inclusive economic growth and uncertain business conditions.
“The government will need to implement further business and financial support programs to ensure that small and medium enterprises survive the current crises and can create jobs and drive inclusive economic growth.”
As of January 16, 2021, the scheme has received 48,366 loan applications, of which 27% have been approved by the banks and have been subscribed by the applicants. 5% of applications are still being assessed, he said.
46% of applications 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 the risk criteria of the banks. 82% of approved loans went to businesses with turnover of less than R20 million.
“Slow economic reform, unreliable electricity supply and lack of inclusive growth, and the resulting low consumer and business confidence, have also reduced business opportunities and the need for credit. ensuing.”