By Phillip de Wet for Business Insider
In the coming weeks small businesses – and ones with an annual turnover of up to R300-million – will be able to start applying for special government-backed Covid-19 loans from South Africa’s commercial banks.
Some of the details, including the single lending rate at which the loans will be priced, are still due to come from the banks themselves. But on Friday the National Treasury provided a broad overview of how the scheme will work.
Loans will be available to cover operational expenses, including rent, salaries, and supplier payments, for up to three months, the Treasury said, with monthly draw-downs.
Any business with turnover below R300-million and which is in good standing can apply to its existing banker for such a loan, but may take out only one Covid-19 loan.
The terms will be commercial, and “a business’ owners may be required to sign surety for the loan,” Treasury said, though that will be up to the lending bank. As with standard lending, there is no obligation on banks to grant any loan applied for.
The interest rate will be linked to the repo rate, which is currently at historic lows.
Interest starts accumulating as soon as the first of the three instalments is drawn down.
The big benefit to borrowers is in the timelines for repayment: no money has to be repaid for six months from the first draw-down. After that repayment can be stretched out for up to five years, making for five-and-a-half years in total to repay.
Banks have plenty of incentive to grant such loans.
“The scheme works on the principle that profits and losses are ultimately shared between government and the banks,” Treasury said.
All profits on the loans go back into a collective pot, where they are first used to offset any losses to loans that go bad. If the overall scheme goes bad, though, banks will only carry 6% of the damage, a maximum of R12 billion.
“Any further losses will ultimately be covered by the fiscus,” said Treasury.