Loan guarantee scheme demand falls despite enduring lockdowna

JOHANNESBURG - The Banking Association of South Africa said demand for assistance from the Covid-19 Loan Guarantee Scheme dropped after April of this year with R18.39 billion in bank-approved loans for small businesses by June 19.

The loan guarantee scheme only approved 65 loans to the value worth R35.7 million in the past month, according to the association's statement issued at the weekend. National Treasury championed the scheme as an intervention to assist small business in the face of the Covid-19 pandemic. However, while some businesses found assistance from the scheme, its status as a loan left a number of businesses apprehensive about taking the assistance on, as vulnerability and the state of the economy left them unsure of their ability to repay the loan after the pandemic.

The association's statement said while the loan guarantee scheme did not match some expectations, it at least succeeded in helping small, micro, and medium enterprises that qualified for assistance to stay in business and save jobs.

"The scheme will not be accepting new applications after 28 June 2021. Although the Covid-19 loan guarantee scheme will remain in operation until 11 July 2021, this is only to allow for those applications that are in process to be finalised," the statement said.

The statement said a number of business owners were "reluctant to take on more debt in an uncertain business environment." Business owners who did not utilise the scheme made other arrangements directly with their banks, the statement said.

"The Covid-19 loan guarantee scheme was only a small part of the ongoing relief that banks offer their clients and customers who are in financial distress.

"Figures reported to the South African Reserve Bank, indicate that as of February 2021, banks had provided R293 billion in financial relief to their customers and clients – corporate getting R165 billion and retail getting R128 billion – which accounted for 5.8 percent of the total corporate and retail credit exposure," the statement said.

The association stressed that government never planned on the loan guarantee scheme providing grants and those businesses qualifying as recipients must be able to repay the loan.