• Over the weekend, government and the banks announced new, relaxed rules for the state-backed loan scheme aimed at business in distress due to the coronavirus pandemic.
  • So far, the scheme has been a disappointment, with only R12 billion out of a potential R200 billion extended.  
  • The repayment period has been extended, and you only need to have been in "good standing" with your bank at the end of 2019.
  • For more articles, go to www.BusinessInsider.co.za.

From this week, it may be easier to get a special government-backed Covid-19 loan. The loans are aimed at bolstering businesses amid the carnage caused by the coronavirus pandemic.

The loans are available at prime (currently 7%), guaranteed by government and available via banks.

While potentially R200 billion worth of loans are available, less than R12 billion has actually been extended. Thousands of applicants have been turned down because they failed the credit risk criteria.

In response, the Reserve Bank – which administers the scheme – together with the Banking Association of SA and Treasury over the weekend announced that some of the rules of the scheme have been relaxed.

Here’s what changed:

  • Previously you had to be in “good standing” with your bank at the end of February 2020, meaning that you were not behind on loan repayments at that point. But this has been moved back to 31 December 2019, to accommodate firms which were already experiencing cash-flow problems in February.  
  • Bank credit assessments “will be more discretionary and less restrictive”. Banks may use their discretion on financial information required, for example bank or financial statements, where audited statements are not available.
  • Sole proprietorships are now explicitly included. The loans may be used for salary-like payments to the owners (“drawings”) of sole proprietorships and small businesses. 
  • The interest and repayment holiday period has been extended, and you can now access the loan over a longer period. So for example, you can draw down a R6 million loan over six months, at R1 million a month. Your interest and capital repayment holiday has been extended from three months to a maximum of six months after the final draw-down. For example, in the case of the R6 million loan, drawn down at R1 million a month for six months, repayments will only be required from month 13.
  • Previously, only companies with an annual turnover of below R300 million could apply. This cap has now been scrapped, but has been replaced with a maximum loan amount of R100 million. Banks may also provide syndicated loans for loans larger than R50 million.
  • If you have been rejected for a loan as part of the scheme, your bank may consider your re-application now. “For example, if the loan was previously declined due to the business not being in good standing with its bank on 29 February 2020 or it was unable to prove its turnover, then the business may apply,” the statement from the Reserve Bank, the banks and Treasury says.

What else you need to know

You can apply for the loan through your bank. Absa, Bidvest Bank, First National Bank, Grindrod Bank, Investec, Mercantile Bank, Nedbank, Sasfin and Standard Bank are all accepting applications. Government say it also exploring the option of working with non-bank lenders who are willing “to share the risks of lending to their client companies in distress”. 

Businesses in good standing with their banks at 31 December 2019, registered with SARS and financially distressed as a result of the Covid-19 outbreak and subsequent lockdowns qualify. 

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. 

Here’s how to bolster your chances to get a loan:

Prepare your paperwork

Bongiwe Gangeni, deputy chief executive of retail and business banking at Absa, recommends that you approach your bank with a detailed cash-flow forecast and a budget.

“The Covid-19 loans, like any other loan, need to be repaid and the bank needs to assess your repayment ability. It is important that customers demonstrate affordability and a reasonable ability to repay the loan in future. The easiest way of doing so would be with the aid of a detailed forecast of expected earnings, expenses and net cash flow."

Clearly state for what purpose you want to borrow the money

According to the government requirements, loans are available to cover operational expenses, including rent, salaries, and supplier payments, for up to three months.

But you are not allowed to use the money to pay dividends, make investments, pay bonuses or pay off other loans that the business may have.

Demonstrate how you have calculated the loan amount

This is very important in assisting the bank in evaluating the request, says Gangeni.

Insist on a conversation with your relationship banker.

“They have all been provided with extensive training on the subject and should be in a position to assist you with the loan request and specifically the motivation and management thereof," Gangeni added.

 

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