‘Big increase’ in scheme loans
MORE CHANGES: EXPECTED TO OIL PAYOUTS
The scheme came too late
Onerous conditions were hindering uptake of loans. Moneyweb
There has been an improvement in the uptake of the Covid-19 credit guarantee scheme for small businesses whose operations have been negatively impacted by the virus and lockdown – with efforts underway to amend some of the qualifying criteria to further increase demand.
The scheme was launched in May. Deputy governor of the South African Reserve Bank (Sarb) Kuben Naidoo said recently the initial uptake of the scheme was fairly low. He has now told Moneyweb that it has “increased significantly in the past week”.
He would not provide any details on how much more has been released from the reported R2-R3 billion he said had been disbursed by each participating bank since it was launched.
The Banking Association of South Africa would not comment on the figures ahead of its Covid-19 debt relief update.
The scheme is an initiative to provide up to R200 billion in largely government-guaranteed loans to small businesses with a turnover of less than R300 million for operational expenses such as salaries, rent and utilities. In the first phase an initial R100 billion was made available to the market. This will be topped up based on demand.
Teething problems
The six participating banks through which loans are available are Absa, Mercantile Bank, First National Bank, Investec, Nedbank and Standard Bank.
“The Treasury and the banks are working on revisions to the scheme to try and further broaden the scope of the scheme to encourage even further take-up,” said Naidoo, adding that any amendments to the scheme are likely to be announced when Finance Minister Tito Mboweni tables his supplementary budget.
The Black Business Council is one of the institutions that has met with Treasury to discuss amendments to the scheme, due to the criteria not being sufficiently inclusive. One of the main proposals is the introduction of non-bank SMME funders that would be able to assist businesses that do not meet the commercial banks’ funding criteria.
Banks are expected to apply their normal risk evaluation and credit application processes when issuing loans, and may also ask borrowers to provide surety as well as other additional conditions they deem fit.
Late start
Stuart Theobald, chair of capital markets and financial services research house Intellidex, said the scheme came too late: nearly two months into lockdown, when some businesses were either closed or had found alternative funding.
The scheme that is in operation was influenced by Intellidex’s proposal for a bank guarantee scheme.
Theobald said the scheme also has onerous conditions and risks for entrepreneurs and that these will have to be removed to encourage greater uptake.
“Not many people are going to put their homes on the line when the outlook is so uncertain,” he said, commenting on the condition for applicants to provide personal suretyship to back their loans.
In addition, entrepreneurs are only allowed to use the loans for overheads and cannot use the money to pay dividends or repay shareholder loans, “which messes with people’s financial planning, particularly if they’ve been funding the business with loans to now”.
Delicate balancing act
The condition of providing surety is one of the issues that is being looked at for possible revision, so that it does not disincentivise businesses that need the loans, said Naidoo.
He however added that the condition is applied in a discretionary manner by individual banks and, based on the feedback that the Sarb has received from the banks, “it’s not a major obstacle to the take-up of the loan”.