The COVID-19 loan guarantee scheme announced by President Cyril Ramaphosa in April recently came into operation on 12 May 2020. The loan guarantee scheme is an initiative to provide loans, guaranteed by government, to eligible businesses considering the economic effect of COVID-19. It is intended to help small and medium sized businesses with an annual turnover of less than R300 million to meet some of their operational expenses such as salaries, rent and lease agreements, contracts with suppliers, etc.
In addition to the annual turnover requirement, a business must be in good standing with its bank to qualify for the loan. This means that the business must be up to date with its other loan payments or be an account holder without any loans as at end-February 2020. The business must have an existing relationship with the bank granting the loan, be registered with SARS and be financially distressed as a result of the COVID-19 outbreak and subsequent lockdowns.
Banks that are currently participating in the scheme include Absa, Mercantile Bank, First National Bank (FirstRand), Investec, Nedbank and Standard Bank, while discussions are under way to enable more banks to participate. Banks will use their risk evaluation and credit application processes to approve or decline applications.
Should the application be successful, the loan amount will be disbursed to the customer in up to three monthly instalments. After that, no payment is expected from the customer for a further three months. The customer then has five years to pay off the loan and associated interest. The interest rate is fixed at the repo rate plus 3.5 per cent.
The National Treasury published a Q & A document that provides more information on the COVID-19 Loan Guarantee Scheme. Click here to read the document.