By Peter Cottrell CA(SA)
In April 2020 a Guaranteed Loan Scheme was announced, representing a partnership between major banks, National Treasury and the South African Reserve Bank. The scheme was intended to address economic impacts of the Covid-19 pandemic, particularly to provide liquidity to businesses that are in distress. Concerns have been expressed over accessibility to the scheme, and on 26 July 2020 National Treasury announced amendments to the scheme.
We have previously provided detailed guidance on the scheme in an article dated 25 April 2020. The amendments to the scheme are designed to make it easier to access, including more discretion in bank credit assessments and the loan being available for a longer period.
Changes have been announced as follows:1
- Business restart loans will now be available to assist businesses that are able to begin operating as the economy opens up.
- Bank credit assessments and loan approvals will be more discretionary and less restrictive, in line with the objectives of the scheme. Banks may use their discretion on financial information required, for example, bank statements or unaudited financial statements, where audited statements are not available. Suretyships or guarantees may also be required. The provisions of the National Credit Act and Financial Intelligence Centre Act remain applicable.
- Clients can now access the loan over a longer period. The draw down period has been extended from three months to a maximum of six months. For example, a R6 million loan can be drawn down over six months, at R1 million a month if the business qualifies. The size of the loan is still calculated based on operating expenses.
- The 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 same R6 million loan, drawn down at R1 million a month for six months, repayments will only be required from month thirteen.
- The turnover cap [previously R300 million] has been replaced with a maximum loan amount of R100 million, meaning that businesses of any size may now apply for financial assistance through the scheme. Banks may also provide syndicated loans for loans larger than R50 million.
- The test for good standing has been made easier. This has now moved back to 31 December 2019 from 29 February 2020, which will accommodate firms that were already experiencing cash-flow problems in February 2020.
- Sole proprietorships are now explicitly included. For sole proprietorships and small companies, salary-like payments to the owners (drawings) are included in the use of proceeds. Security, suretyships or guarantees are not explicitly required.
As was the case previously, businesses should contact their bankers to obtain further information on the scheme and the qualifying criteria.
1 Treasury Media Statement 26 July 2020 – Update on Covid-19 Loan Guarantee Scheme