As of 27 February 2021, R18,01 billion in loans had been approved by banks and taken up by small businesses under the Covid-19 Loan Guarantee Scheme. In the preceding two weeks, participating banks received only 258 applications for loans, of which 61, to the value of R54 million, were approved.
Based on present trends, the weak demand for loans from the scheme – which expires on 11 April 2021 – is expected to decrease even further in its final weeks. The Banking Association South Africa’s (BASA) review of the scheme indicates that qualifying business owners are reluctant to take on more debt in a weak and uncertain business environment; or they have made their own financial relief arrangements directly with individual 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.
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 applying for credit that they may struggle to repay. BASA would welcome the opportunity to work with government to leverage state grants and equity funding in support of small businesses.
Until 27 February 2021, the scheme received 49 317 applications for loans, of which 26% were approved by banks and were taken-up by the applicants. Five percent of the applications are still in the process of being assessed.
Forty-seven 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 include: the requested value of the loan being 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.
Eighty-two percent of the loans approved – with a value of R6,62 billion – went to enterprises with a turnover of up to R20 million per annum. The average size of a loan was R1,23 million.