By Siphelele Dludla for IOL
The government has extended the deadline for the R200-million Loan Guarantee Scheme (LGS) by three months to 11 July 2021, in a bid to harmonise it for all participating commercial banks.
The end of the Availability Period was set for April 11 for most participating banks under the guarantee scheme.
The troubled scheme, set up in May 2020 as part of the R500 billion Economic Stimulus Package, has largely been rendered moribund as small businesses owners have been reluctant to take on more debt in a weak and uncertain business environment.
The scheme was meant to support small businesses experiencing financial distress from the Covid-19 impact.
Funds borrowed from this scheme, through the banking industry, can be used for operational expenses such as salaries, rent and lease agreements and contracts with suppliers.
The government said as at March 27, banks had approved 14 827 in loans to the value of R18.16bn, from R18.01bn a month before.
In a joint statement by the National Treasury, the SA Reserve Bank, and the Banking Association SA (Basa), the government said the scheme would continue to service all loans advanced up to the extended date, for up to five years.
“The further extension of three months will enable an orderly winding down of the scheme and allow those businesses who have applications already lodged to be assessed,” it said.
“The LGS has not been as effective as originally envisaged, as many distressed companies have been reluctant to assume more liabilities with little certainty of the length and severity of the economic impact of the Covid-19 pandemic.”
The government said existing support measures by the SA Reserve Bank and Financial Sector Conduct Authority would continue, subject to conditions and regulatory mandates.
It said the National Treasury continued to explore more appropriate support and risk-sharing mechanisms, including proposals related to non-bank financial institutions and development finance institutions.
Basa said given the lack of demand for Covid-19 loans, it would welcome the opportunity to work further with National Treasury to leverage state grants and equity funding in support of small businesses.
Basa said it had also called for the reduction of red-tape and policy uncertainty, and for it to be made easier to do business, especially for small and medium enterprises. Facilitating entrepreneurship and small business development is among the surest and fastest ways to boost inclusive economic growth and job creation, without having to introduce new programmes and additional spending.
Until March 27, the scheme had received 49 957 applications for loans, of which 26 percent were approved by banks and were taken-up by the applicants. Two percent of the applications were still in the process of being assessed.
Fifty-six percent of applications received so far were rejected because they did not meet the eligibility criteria for the scheme, as set out by Treasury and the Reserve Bank, or because they did not meet banks’ risk criteria. The main reasons for rejection were that the requested value of the loan was too high for the business to be reasonably expected to be able repay it; or the enterprise was not in good financial standing before the pandemic.
Eighty-two percent of the loans approved – with a value of R6.77bn – went to enterprises with a turnover of up to R20m. The average value of a loan under the scheme is R1.24m.
The loan extension comes as analysts revise South Africa’ growth expectations for the year.
In its latest Economic Outlook 2021 Report, Momentum yesterday revised downwards South Africa’s growth forecast to 3.4 percent this year, from 3.8 percent forecast in March, amid slowing pace of global vaccination.
Momentum’s outlook is right in the middle of the SA Reserve Bank and the National Treasury estimates, which expect the economy to rebound by 3.3 percent and 3.8 percent this year, respectively.
However, Momentum’s world economic outlook was at odds with the recent optimistic global growth by the International Monetary Fund (IMF).
The IMF last week revised its world economic growth estimate for 2021 upwards to 6 percent, from 5.5 percent estimated in January 2021 and 5.2 percent estimated in October 2020.