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[EXPLAINER] Covid-19 loan guarantee scheme for small businesses is now open

13 May 2020 9:08 AM

Bongiwe Kunene (MD, Banking Association SA) carefully and clearly explains the terms of the loan and who may apply.

The Covid-19 loan guarantee scheme for small businesses is now active.

Picture: www.123rf.com

Owners of distressed businesses who bank with Mercantile Bank (owned by Capitec Bank), Absa, FNB, Standard Bank, Nedbank and Investec may now apply.

The loan guarantee scheme provides government-backed loans of R100 billion to small businesses so they can cover costs such as wages, rent, levies, suppliers, utilities, etc.

Treasury has committed to raising the guarantee to R200 billion if the scheme proves to be successful.

Only businesses with an annual turnover of less than R300 million may apply.

Small business owners should contact their banks directly with queries.

Refilwe Moloto interviewed Bongiwe Kunene, the Managing Director at the Banking Association South Africa.

They spoke about the loan guarantee scheme in general and how small business owners can apply for relief.

…tax-paying businesses… if impacted by the lockdown, they can apply through their banks for this loan. It’ll be dispersed over three months. They have a further three months in which they don’t have to pay. They start repaying in the seventh month. It’s a five-year loan to help companies with liquidity problems…

Bongiwe Kunene, MD - Banking Association SA

It is for salaries and wages, but it can’t pay any dividends. You can’t pay off other loans, or bonuses…

Bongiwe Kunene, MD - Banking Association SA

Each bank decides, together with the South African Reserve Bank [Sarb], what the size of the loan is. But you can only have one loan per business.

Bongiwe Kunene, MD - Banking Association SA

It’s not designed to make a profit for the bank. The Sarb lends to the bank at the repo rate [4.25%]. The Sarb adds a 0.5% fee for administering the loan [taking the interest rate it charges banks to 4.75%] … Banks will lend at the prime rate [7.75%]. You can’t call it a profit – they must provide for the probability of loss…

Bongiwe Kunene, MD - Banking Association SA

For a detailed explanation, listen to the interview in the audio below


13 May 2020 9:08 AM

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