Money
  • Government and banks came up with a loan scheme that was supposed to offer R200 billion in funding to help smaller businesses through Covid-19 – on what they thought were great terms.
  • Most of the businesses targeted said no thanks.
  • For many businesses the scheme came too late, banks believe; they were either already out of business or had come right without government help.
  • But restrictions on paying out dividends and how the money may be used could also be a problem. Those are now being renegotiated.
  • What that means for the companies that have signed deals is not yet clear.
  • For more stories go to www.BusinessInsider.co.za.


The rules for access to and how bank loans guaranteed by the government may be used could be changing soon, after the R200 billion scheme fell flat.

But exactly what the new terms will be, and what will happen to those who already signed up for such money, remains to be seen.

In mid-May banks started to accept applications from businesses with turnover of up to R300 million per year for the special Covid-19 loans on what seemed to be good terms: six months before repayments begin, and five years after that to pay, at the prime interest rate.

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

But uptake was dismal. By the first week of June only R7 billion worth of loans had been approved, the Banking Association of SA (Basa) said on Monday, across a total of just 4,800 businesses.

By contrast, 124,000 small to medium businesses had come to agreements with their banks on temporary cash flow relief of one kind or another, without government backing.

Some 5,200 small businesses applied for the 5-year government-backed loans, said Basa managing director Bongiwe Kunene, but were rejected because they were not eligible under its rules. Another 5,400 were turned away because banks did not deem them credit-worthy - 200 more were approved, but walked away when they were presented with the term sheets.

Some 14,100 applications were still under review as of early June.

There were a number of "challenges" that led to the low uptake, said Kunene.

Some of those cannot be solved, such as a late start; many businesses were already out of business, or had made alternative plans for money.

But other factors holding back lenders are now under discussion between the banks and the government, which share the risk on loans. Those include demands for personal suretyship from entrepreneurs – who are warily eyeing the state of the economy and declining to put their homes or other assets on the line. Also apparently up for discussion, though Kunene would not reveal details, are restrictions on paying dividends or paying off shareholder loans, which are incompatible with the way some businesses structure their finances.

The cash drawn from the loans is, currently, only supposed to be used to pay salaries, rent, and suppliers. But businesses "want to maybe use the funds for consulting, looking into how they can change their operating models," said Kunene, or may want to set up e-commerce systems to reach customers.

"That is a legitimate ask by the client, but then you find that client can not be assisted because they are not saying 'we want to pay our workers, we want to make sure we cover our operating costs for the next six months', they are looking rather at a much longer horizon."

Kunene would not speculate on when new terms for such loans would be in place, exactly what their nature may be, or whether already signed agreements would be relaxed too. 

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