The Banking Association of South Africa (BASA) says that as of 16 January 2021, R17.84 billion in loans had been approved by banks and taken up by small businesses under the Covid-19 loan guarantee scheme.

Announced by president Cyril Ramaphosa in April 2020 alongside other measures, the scheme aimed to encourage banks to lend more money, on more favourable terms, to businesses whose operations had been affected by the pandemic.

Initially, the National Treasury provided a guarantee of R100 billion to the scheme, with the option to increase the guarantee to R200 billion if necessary, if the scheme was deemed successful.

However, almost one year on, demand for the scheme remains significantly below the original expectations – and participating banks expect applications for the scheme to slow-down further in the coming months, BASA said.

“This is despite an expected increase in financial pressure on small enterprises, especially those in the hotel and tourism sector due to restrictions on their businesses under the adjusted level three lockdown regulations.

“Based on present trends, it is probable that only R18.9 billion in loans will be approved under the scheme,” it said.

What happened?

The association said that business owners remain reluctant to incur more debt due to the challenges presented by inconsistent policy and regulation, uncertain business conditions, and a weak economic outlook.

These hamper business owners’ ability to generate sustainable income, which they need to repay the loan, it said.

As part of their usual business, banks offer relief to their customers who are in financial distress. The association said that banks will continue to offer their personal, business and corporate customers, who qualify, bespoke payment breaks and debt restructuring assistance.

“For many businesses, this is a better option than the loan guarantee scheme. BASA understands that the Covid-19 Loan Guarantee Scheme – conceived and implemented at great speed in a time of crisis – has not achieved all it set out to do.

“However, banks’ assistance to their customers and their contribution to the recovery and reconstruction of the economy goes well beyond the Covid-19 Loan Guarantee Scheme.”

As implementing partners of the loan scheme, BASA said that banks have been given the responsibility to ensure that taxpayers’ funds are not exposed to undue risk of the loans not being repaid.

“Covid-19 loans can only be extended to business that meet the criteria set out by the Reserve Bank and National Treasury and banks’ prudent risk management policies.

“The scheme does not extend grants or equity to companies in financial difficulties nor assist those that are in distress for reasons other than those related to the pandemic.”

BASA added that only the Reserve Bank and National Treasury can make any changes to the operations and criteria of the scheme.

Government needs to come to the party

BASA said that the scheme on its own cannot address all of the financial and business challenges facing small enterprises, many of which pre-date the pandemic and were caused by a lack of inclusive economic growth and uncertain business conditions.

“Government will have to implement other business and financial support programmes to ensure small and medium enterprises survive the present crises and can create jobs and spur inclusive economic growth.”

As of 16 January 2021, the scheme received 48,366 applications for loans, of which 27% were approved by banks and were taken-up by the applicants. 5% of the applications are still in the process of being assessed, it said.

46% of applications rejected were because they did not meet the eligibility criteria for the scheme, as set out by the Treasury and the Reserve Bank or because they did not meet banks’ risk criteria. 82% of the loans approved went to enterprises with a turnover of up to R20 million.

“The slow pace of economic reform, an unreliable electricity supply and lack of inclusive growth, as well as the subsequent weak consumer and business confidence, has also reduced opportunities for enterprise and the associated need for credit.”