South African businesses will now be able to apply for ‘Covid-19’ loans from their bank – here’s what you need to know
The Treasury has released additional details on how the R200 billion coronavirus business loan program works.
The program – which was first announced by President Cyril Ramaphosa as part of a R500 billion tax package – was developed by the Treasury, the South African Reserve Bank and a number of banks trade of the country.
In terms of this program, R200 billion will eventually be made available for new loans to existing clients. The initial phase will consist of funding of R100 billion.
The Treasury said the main features of the program are as follows:
- Covid-19 loans will be available from banks for qualifying businesses in good standing with their commercial banks with annual turnover below R300 million;
- The funds borrowed under this program can be used for operational expenses such as salaries, leases and leases, contracts with suppliers, etc. The loans will cover up to three months of operational costs and will be drawn monthly;
- Banks are not required to extend Covid-19 loans, and those that do will use their normal risk assessment and credit application processes. Business owners may be required to sign a surety for the loan;
- Each company can only accept one Covid-19 loan;
- Covid-19 loans will be offered at a single lending rate agreed to by all banks participating in the program. The rate will follow the pension rate;
- A six-month repayment holiday will begin from the first drawdown, although interest will accrue from the date of the first drawdown on the loan;
- Repayment of interest and principal begins after six months and businesses have a maximum of 60 months to do so. Borrowers can repay the loan sooner than expected;
- The device will be deployed by banks over the coming weeks.
The program operates on the principle that profits and losses are ultimately shared between the government and the banks, the Treasury said.
“The system will receive all the ‘benefits’ of the loans, that is, the difference between the rate at which banks lend money, as well as limited costs.
“This will include a guarantee fee charged to banks in connection with the program. These profits will be used to offset any losses from the program, ”he said.
The Treasury said if the program suffered further losses, these would be absorbed by the banks themselves, capped at 6% of the loan amount. Any additional loss will ultimately be covered by the tax authorities.
Those interested in the program were invited to contact their bank for more details and eligibility criteria.