The South African Reserve Bank (SARB) and the National Treasury have partnered with the Banking Association South Africa (BASA) to form the COVID-19 Loan Scheme.

The scheme is there to support SMMEs who are being financially impacted by the COVID-19 pandemic, and will allow qualifying businesses to apply for loan funding from their primary bank. The loan will cover three months’ worth of operational costs, salaries, rent and supplier payments. All loans will be subject to bank credit approvals.

The following principles will apply for the Loan Scheme:

• The COVID-19 loan scheme is a commercial arrangement and requires a credit application process, through which banks must evaluate if the business will likely be able to service all its commitments after the pandemic and lockdown. Banks are not obliged to extend COVID-19 loans and business owners may be required to sign surety.
• The size of the COVID-19 loan will be calculated on the three-month funding requirement of certain operating expenses of the business, as approved by the bank, to be disbursed in monthly tranches.
• Banks will not profit from the provision of the SARB guarantee. However, the administrative cost of facilitating the loans and the cost of capital will be recovered.
• In the event of default, the COVID-19 loan would be subordinated to all other creditor claims.
• The repayment of shareholder loans or dividends, using these funds, is expressly prohibited.

Businesses will only be able to qualify for the Loan Scheme if they have a turnover of under R300 million per annum, have a good standing with their bank prior to the COVID-19 pandemic, are registered with the tax authority, are adversely impacted by the lockdown and have insufficient normal borrowing capacity to fully fund its monthly operating expenses.

The Loan Scheme is expected to launch after all the necessary legal agreements are finalised including the application process.

To find out more about the COVID-19 Loan Scheme, please click here. We will keep you updated on the latest developments regarding this scheme.