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  • Fewer than 7,500 businesses have received loans from banks as part of government's Covid-19 financing scheme. 
  • On average, each company received R1.4 million - but there are still billions on offer as part of the scheme.
  • Prospective applicants can improve their chances of getting money by clearly stating the purpose for the money. 
  • For more articles, go to www.BusinessInsider.co.za.

So far, 7,496 small businesses have received loans worth R10.6 billion as part of the Covid-19 Loan Guarantee Scheme, which was launched in mid-May. On average, each company received a loan of R1.4 million from the government-backed scheme, which still has billions available.

The scheme allows businesses with an annual turnover of up to R300 million to apply for special loans from South Africa's banks. Government will guarantee R100 billion of these loans, with the option to increase the amount to R200 billion if the scheme is successful.

You need to apply for the loan through your bank. Absa, First National Bank, Investec, Mercantile Bank, Nedbank, Capitec, and Standard Bank are 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.

The interest rate on the loans 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.

Take-up has so far been dismal – and the banks and government are currently considering how the scheme can be improved.

READ | The rules for a R200bn govt-backed loan scheme may be relaxed soon – after it fell flat

On Tuesday, the Bank Association of SA confirmed that almost 34,000 applications were received, but that nearly 13,000 were rejected because they did not meet the banks’ risk criteria, or were not eligible in terms of the scheme. Other applications were approved, but the businesses decided not to take up the loans.

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.

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.

Managing director of the Banking Association South Africa (BASA), Bongiwe Kunene, stressed that the loans are not meant as "grants" to support small businesses. “Each loan is subject to a credit approval process during which banks must evaluate whether the business will be able to service its commitments as economic activity resumes.”

Here’s how to bolster your chances of getting 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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