Home  »  Articles   »   COVID-19 Loan Guarantee Scheme Underway

Articles
COVID-19 Loan Guarantee Scheme Underway

May 13, 2020

National Treasury

The COVID-19 loan guarantee scheme announced by president Ramaphosa in April got underway on 12 May 2020.

According to national treasury, the South African Reserve Bank and the Banking Association South Africa, the initial set of participating banks (Absa, First National Bank, Investec, Mercantile Bank, Nedbank and Standard Bank) are ready to accept loan applications from eligible businesses that bank with them.

Loans, guaranteed by government, will be provided to eligible businesses with an annual turnover of less than R300 million to meet some operational expenses.

“Funds borrowed through this scheme can be used for operational expenses such as salaries, rent and lease agreements, contracts with suppliers, etc.”

Eligible businesses are advised to contact their primary or main banker.

In the Frequently Asked Questions guide, the parties point out that “government is partnering with commercial banks to provide financial support to small and medium-sized firms to enable them to meet their operational needs over the next few months”.

The document also indicates that treasury has provided a guarantee to the Reserve Bank recorded as a contingent liability on the government’s account.

“The Reserve Bank will lend money to commercial banks at the repo rate (currently 4.25 per cent) plus a 0.5 per cent guarantee fee. Banks will lend this money to small and medium-sized businesses at the repo rate plus a fixed spread of 3.5 per cent (currently 7.75 per cent, equal to the prime lending rate).”

In another statement, treasury confirmed that government has made available more than R5 billion in support to municipalities to assist them in responding to the COVID-19 pandemic in the 2019/20 municipal financial year.

“This support is assisting municipalities to provide additional access to basic services for vulnerable communities during the lockdown and to sanitize public transport facilities as the economy undergoes a phased re-opening.”

Treasury also indicated that the COVID-19 special adjustment budget will contain detail on further support to municipalities in the 2020/21 municipal financial year.