SARB updated its COVID-19 loan guarantee scheme, along with the associated frequently asked questions (FAQs). The COVID-19 loan guarantee scheme is an initiative to provide loans, substantially guaranteed by government, to businesses to meet some of their operational expenses. Commercial banks and the National Treasury share the risks of these loans, which is administered by SARB. One of the key changes to the scheme is a relaxed test for good standing, which has now moved back to December 31, 2019, from February 29, 2020, to accommodate firms that were already experiencing cash-flow problems in February.
The loans are granted at a preferential rate (prime) and repayment may be deferred for a maximum of one year after taking out the loan. Businesses will then be required to repay the loan over five years. Government and commercial banks are sharing the risk of non-repayment of these loans. Government is engaging with non-bank lenders to possibly extend the scheme. Following a review of the scheme, the following changes are announced:
- Business restart loans will now be available, to assist businesses that are able to begin operating as the economy opens up.
- Bank credit assessments and loan approvals will be more discretionary and less restrictive, in line with the objectives of the scheme. Banks may use their discretion on financial information required—for example, bank or financial statements, where audited statements are not available. Suretyships or guarantees may also be required. The provisions of the National Credit Act and Financial Intelligence Center Act remain applicable
- Clients can now access the loan over a longer period. The draw down period has been extended from three months to a maximum of six months. For example, a ZAR 6 million loan can be drawn down over six months, at ZAR 1 million a month if the business qualifies.
- The interest and capital repayment holiday has been extended from three months to a maximum of six months after the final draw down. For example, in the case of the same ZAR 6 million loan, drawn down at ZAR 1 million a month for six months, with repayments only being required from month 13.
- The turnover cap has been replaced with a maximum loan amount of ZAR 100 million. Banks may also provide syndicated loans for loans larger than ZAR 50 million.
- Sole proprietorships are now explicitly included. For sole proprietorships and small companies, salary-like payments to the owners are included in the use of proceeds. Security, suretyships, or guarantees are not explicitly required,
The National Treasury, SARB and commercial banks, represented by The Banking Association South Africa, have agreed on the relevant legal framework and financial and operational requirements. SARB will provide the finances for these loans to banks and will keep a record of the amounts owing by each bank as well as the default rates. SARB will publish an annual report setting out how much each bank has used from the scheme and the performance (default rate) of each bank’s COVID-19 loan portfolio. All commercial banks can access the guarantee scheme, though SARB reserves the right to limit the amount that can be accessed by an individual bank. Participating banks at the moment include Absa, Bidvest Bank, First National Bank (FirstRand), Grindrod Bank, Investec, Mercantile Bank, Nedbank, SASFIN Bank, and Standard Bank.
Related Link: Press Release and FAQs
Keywords: Middle East and Africa, South Africa, Banking, COVID-19, Credit Risk, Loan Guarantee, FAQ, Payment Deferrals, SARB
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