How to boost your firm's chance of getting money from SA's R200 billion Covid-19 loan scheme

Business Insider SA
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  • Government is guaranteeing loans to businesses hit by the coronavirus crisis.
  • The interest rate is repo plus 3.5 percentage points - and no money has to be repaid for six months from the first draw-down.
  • An Absa executive has advice on how to bolster your chances of a successful application.
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Last month, a new scheme was launched which allows businesses with an annual turnover of up to R300 million to apply for special government-backed Covid-19 loans from South Africa's commercial banks.

You need to apply for it through your bank. Absa, First National Bank, Investec, Mercantile Bank, Nedbank, Capitec, and Standard Bank are now accepting applications from their clients for the scheme, which is administered by the Reserve Bank. The loans are aimed at bolstering businesses amid the carnage caused by the coronavirus pandemic.

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

Government will guarantee R100 billion of these loans, with the option to increase the amount to R200 billion if the scheme is successful.

But so far, the four big banks have only lent up to R12 billion (in total) by last week, Business Day reported.

There has been criticism about the strict conditions governing what the money can be used for – it can’t, for example, be used to help settle past debts that may be crippling a business.

READ Khaya Sithole | SA's new coronavirus loan guarantee scheme: reading the fine print

Some business owners who have applied, have also objected to the fact that they have been asked to provide surety – including their houses – for the loans. But the banks told Fin24 that this won’t necessarily be the case with all applications.

All applicants will, however, have to pass a credit assessment by their bank’s credit department.  The credit assessment should be less cumbersome than for a normal loan.

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.

What you need to know about the Covid-19 loan guarantee scheme

Any business with turnover below R300 million and which is in good standing with its bank, can apply – but each company may take out only one Covid-19 loan.

The interest rate is repo plus 3.5 percentage points (currently 7.25%, or the prime rate).

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.

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 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.

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