Money and Markets

5.5 years to pay: How SA’s just-opened R200bn Covid-19 loan scheme works

Business Insider SA
 The rand
  • Absa, First National Bank, Investec, Mercantile Bank, Capitec, Nedbank, and Standard Bank are now accepting applications for Covid-19 loans backed by the state, with up to R200 billion on offer.
  • Businesses that make up to R300 million can get cash, with a payment holiday of six months and another five years after that to pay.
  • If things go well, the banks share in the profits. If not, all but 6% of loans is underwritten by the state.
  • For more stories go to

* This article was updated after the opening of the loan scheme on 12 May.

Small businesses – and ones with an annual turnover of up to R300 million – can now apply for special government-backed Covid-19 loans from South Africa's commercial banks.

Absa, First National Bank, Investec, Mercantile Bank, Nedbank, Capitec, and Standard Bank are now accepting applications under the scheme, the Reserve Bank said on Tuesday, though "discussions are under way to enable more banks to participate".

"Eligible businesses should contact their primary or main banker," the central bank said.

The first R100 billion has been provided in guarantee form, "with the option to increase the guarantee to R200 billion if necessary and if the scheme is deemed successful," said the Reserve Bank.

The Reserve Bank administers the scheme, and is due to publish annual figures on how much each of the lending banks take up.

The National Treasury previously provided a broad overview of how the scheme works.

Loans are available to cover operational expenses, including rent, salaries, and supplier payments, for up to three months, the Treasury said, with monthly draw-downs.

"Businesses may not use these loans to pay dividends, make investments, pay bonuses or pay off other loans that the business may have," the Reserve Bank said.

Any business with turnover below R300 million and which is in good standing can apply to its existing banker for such a loan, but may take out only one Covid-19 loan.

The terms will be commercial, and "a business’ owners may be required to sign surety for the loan," Treasury said, though that will be up to the lending bank. As with standard lending, there is no obligation on banks to grant any loan applied for.

The interest rate will be linked to the repo rate, which is currently at historic lows, at repo plus 3.5 percentage points, which equals the current prime rate of 7.75%.

Interest starts accumulating as soon as the first of the three instalments is drawn down.

The big benefit to borrowers is in the timelines for repayment: no money has to be repaid for six months from the first draw-down. After that repayment can be stretched out for up to five years, making for five-and-a-half years in total to repay.

Banks have plenty of incentive to grant such loans.

"The scheme works on the principle that profits and losses are ultimately shared between government and the banks," Treasury said previously.

All profits on the loans go back into a collective pot, where they are first used to offset any losses to loans that go bad. If the overall scheme goes bad, though, banks will only carry 6% of the damage, a maximum of R12 billion.

"Any further losses will ultimately be covered by the fiscus," said Treasury. 

The National Treasury charges a 0.5 percentage point guarantee fee on loans, the Reserve Bank said on Tuesday. That will be treated as a loss buffer, and depleted before banks take any losses.

If a bank claims against the guarantee, "the Reserve Bank will require an independent audit to ensure that sound lending practices were applied."

"If a business that has taken a loan goes into liquidation, the Covid-19 loan is treated as equity and therefore ranks behind other creditors," the Reserve Bank said.

(Compiled by Phillip de Wet.)

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