On 21 April 2020, President Cyril Ramaphosa also announced a R200,000,000,000 COVID-19 loan guarantee scheme in partnership with the major banks, National Treasury and the South African Reserve Bank.
This announcement was followed by, inter alia, a media statement and a publication issued by National Treasury, the South African Reserve Bank and the Banking Association of South Africa confirming that the COVID-19 loan guarantee scheme would operate from 12 May 2020 and that National Treasury will initially provide a R100,000,000,000 guarantee with the option to increase it to R200,000,000,000 if necessary and provided that the scheme is successful. In addition, the aforesaid publication raises some noteworthy points for SMEs that wish to apply to their relevant participating banks (currently being the Partner Banks) for a COVID-19 loan which, inter alia, are as follows:
In order to qualify for the COVID-19 loan guarantee scheme, the relevant business must:
- have a group annual turnover of less than R300,000,000;
- have been up to date with its loan payments to the relevant bank or be an account holder without any loans at the relevant bank as at end-February 2020;
- have an existing relationship with the bank that grants it the COVID-19 loan;
- be registered with SARS; and
- be financially distressed as a result of the COVID-19 outbreak and subsequent lockdowns; and
- the material conditions imposed in relation to the COVID-19 loans include the following:
- the loan can only be used for operational expenditure such as salaries, rent, utilities and ordinary-course supplier payments;
- the loan cannot be used to pay dividends, make investments, pay bonuses or pay off other existing loans that the business may have;
- the loan amount will be disbursed in up to 3 monthly instalments, thereafter no payment will be expected for a further 3 months;
- the relevant business will have 5 years to pay off the loan and associated interest. In this respect, the interest rate is fixed at the repo rate plus 3.5% and the participating banks cannot vary this condition;
- each applying business is entitled to only one loan;
- banks can require businesses to provide security or suretyships and may impose additional conditions as they deem fit; and
- banks are not obliged to extend COVID-19 loans and will therefore use their own risk-evaluation and credit application processes to decide whether or not to approve an application.