Avoid the payment holiday
CONSEQUENCES: YOU WILL EVENTUALLY PAY
Such an economic intervention does not stop the loan from incurring interest or bank charges.
We can be proud of how South Africa is handling the coronavirus pandemic and commend the offering of payment relief that financial institutions are extending to small and medium-sized enterprises (SMEs) in this critical time.
However, payment holidays are not without consequence.
In these uncertain times, we must understand what such economic interventions entail and how they are going to unfold so we may be prepared and prevent unnecessary future economic strain in the post-pandemic world.
We know Covid-19 will have a substantial impact on our economy as we see lockdown periods extended and many of us are wondering what our obligations and responsibilities are.
To make it through and prevent total economic collapse, regular South African consumers must continue to make their payments to businesses.
SMEs are the heart of our economy and employ millions of South Africans who still need salaries.
As of 1 April and until 30 June, the payment holiday will suspend your legal obligation to meet your full monthly bank repayment.
However, it does not stop the loan from incurring interest or bank charges.
In other words, you are still expected to pay the fees and interest incurred on your loan for these three months after the lockdown is over.
Essentially, a payment holiday is a show of good faith from the bank, saying that for the next three months they will not act against you for not paying.
As an SME you must meet the following criteria to qualify for a payment holiday:
Your business must be based in South Africa;
The annual turnover of your business must be less than R20 million;
Your accounts and tax must be paid up to date;
Your business must be in good standing with the bank; and
The payment holiday does not include payments on which your business has already fallen behind.
We recommend to all SMEs who can afford it to avoid making use of the payment holidays.
The long-term effect of paying interest on the increased amount after the threemonth holiday can have a severe impact on your business’ future cash-flow.
If there is no alternative, then you should be aware of the implications.
Businesses can mitigate the economic impact of Covid-19 by taking their business digital wherever possible and maintain contact with their customer base.
Rerouting communication to cellphone lines, video-conferencing and e-mail, and transitioning into the e-commerce space can aid in stabilising some of a business’ income and allow entrepreneurs to continue to do business to a certain extent.
Hanno Bekker is founding director of the Financial and Legal Research Group