Africa-Press – South-Africa. JOHANNESBURG – THE BANKING Association South Africa (Basa) has lamented the continued lack of appetite for the R200 billion Covid-19 Loan Guarantee Scheme as it comes to an end on April 11.
However, Basa last week said only R18.01bn in loans had been approved by banks and taken up by small businesses as of February 27.
The Covid-19 Loan Guarantee Scheme provides loans, substantially guaranteed by the government, to eligible businesses to assist them during the pandemic.
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.
In the preceding two weeks, participating banks received only 258 applications for loans, of which 61 were approved, to the value of R54 million.
Basa said that based on present trends, the weak demand for loans from the scheme was expected to decrease even further in its final weeks.
“Basa’s review of the scheme indicates that qualifying business owners are reluctant to take on more debt in a weak and uncertain business environment; or they have made their own financial relief arrangements directly with individual banks,” it said.
“Small businesses in financial distress prefer grant or equity funding, rather than applying for credit that they may struggle to repay.”
Basa said it would welcome the opportunity to work with government to leverage state grants and equity funding in support of small businesses.
At least 45 percent of applications received so far were rejected because they did not meet the eligibility criteria for the scheme, or because they did not meet banks’ risk criteria.
The main reasons for rejection include the requested value of the loan being too high for the business to be reasonably expected to be able to repay it; or the enterprise was not in good financial standing before the pandemic.
Last month, Intellidex said the Covid-19 Loan Guarantee Scheme was “largely moribund” due to slowing momentum.
It said this experience was like many other countries that created guarantee schemes, in that they fell far short of targets and the rate of growth has been slowing.
The scheme was the single largest plank of the government’s R500bn Covid-19 stimulus package announced in April 2020.
Business Partners International chief operating officer Mark Paper said the country’s financiers need to show more ingenuity in providing small medium enterprises (SMEs) better access to these funds.
Paper said while more SMEs seem to be applying for Covid-19 relief funds and initiatives, their SME Index reveals that 28 percent of those surveyed were unsuccessful in securing this aid.
“The approach to relief capital is very different to that of growth capital,” Paper said.
“Relief capital requires smaller ticket sizes; quicker turnaround; elements of patient capital; and the due diligence to focus on whether the underlying business will remain solvent and liquid.”
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