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COVID-19 Loan Guarantee Scheme Under the Spotlight

August 31, 2020

National Treasury

National Treasury and the South African Reserve Bank never intended for the COVID-19 Loan Guarantee Scheme to be called in full.

Treasury revealed this in a briefing to the portfolio committee on small business development.

Treasury added that it expects the Loan Guarantee Scheme (LGS) to be relatively small given the tight fiscal situation South Africa faces and the need to stabilise debt to GDP.

Phase 2 of the LGS was launched on 27 July 2020.

In the second phase, the turnover limit was abolished and replaced with a maximum loan amount of R100m per loan.

Treasury pointed out that Bidvest Bank, Grindrod Bank, and SASFIN Bank have joined the LGS since it was launched in May 2020.

The loan can now be used as a business restart loan and banks are also able to consider re-applications by clients whose loans were declined under Phase 1.

The drawdown period now stands at 6 months and the interest and capital repayment deferral has also been extended.

The interest and capital repayment deferral may be extended from 3 months to a maximum of 6 months after the final drawdown.

Treasury reported that, as at 23 August 2020, R13,39 billion in LGS loans have been extended to 9,125 businesses.

Over 84% of individuals and 95% of businesses who approached their respective banks for relief received assistance and the average loan size is R1,2m.

Treasury highlighted that demand for Covid-19 loans is expected to peak soon due to the prevailing business and economic conditions.

Meanwhile, in Government Gazette 43660, treasury published the Rate of Interest on Government Loans.

The rate of interest is determined in terms of the Public Finance Management Act.

It applies to all loans granted out of the Revenue Fund and/or to all debts which have to be paid into the Fund.

The rate of interest is set at 7.00% per annum as from 1 September 2020.

In Notice 936, treasury published, in accordance with section 26(1) of the 2020 Division of Revenue Act, the allocations per municipality for each Schedule 4, Part B; 5, Part B; and 6, Part B conditional grants to local government; and Schedule 5, Part A and 6, Part A conditional grants to provinces, as amended by the 2020 Division of Revenue Amendment Act.