June Covid-19 Loan Guarantee Scheme Update

As at 19 June 2021, R18,39 billion in loans had been approved by banks and taken up by small businesses under the Covid-19 Loan Guarantee Scheme. Demand for the scheme dropped sharply since April 2021, and in the past month only 65 loans, with a value of R35,70 million, have been approved by banks.

The scheme will not be accepting new applications after 28 June 2021. Although the Covid-19 Loan Guarantee Scheme will remain in operation until 11 July 2021, this is only to allow for those applications that are in process to be finalised.

While the scheme did not match some of its initial expectations, it succeeded in helping those enterprises that qualified to stay in business and save jobs. However, many business owners were 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 Covid-19 Loan Guarantee Scheme was only a small part of the ongoing 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; 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, load-shedding and uncertain business conditions. The Banking Association South Africa (BASA) has 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.

As at 25 June 2021, the scheme received 50 717 applications for loans, of which 26% – or 13 324 – were approved by banks and were taken-up by the applicants.
Fifty-six percent of applications received 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 were 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 R6,90 billion – went to enterprises with a turnover of up to R20 million. The average value of a loan under the scheme is R1,22 million.