Demand for loan guarantee schemes falls despite prolonged isolation

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  • Within the framework of the loan guarantee scheme for the last month, only 65 loans were approved in the amount of 35.7 million rubles.
  • While some businesses have found help with the scheme, its loan status has made a number of businesses fearful that they will need help.
  • The South African Banking Association said the scheme helps skilled businesses stay in business and retain jobs.

The South African Banking Association reported that after April this year, demand for coronavirus-related loan guarantee scheme aid fell to R18.39 billion in bank-approved small business loans by June 19.

According to the association’s statement released on Saturday, only 65 loans have been approved under the loan guarantee scheme in the last month, totaling R35.7 million. The National Treasury championed the scheme as an intervention to help small businesses in the face of the Covid-19 pandemic.

However, while some businesses found help in the scheme, its loan status made a number of businesses wary of getting it, as they were uncertain about their ability to repay the loan after the pandemic due to the vulnerability and state of the economy.

The association said in a statement that while the loan guarantee scheme fell short of some expectations, it at least helped eligible small, micro and medium-sized enterprises (SMEs) stay in business and retain jobs.

“The scheme will not accept new applications after June 28, 2021. Although the Covid-19 loan guarantee scheme will be in effect until July 11, 2021, it is only intended to ensure that those applications that are in the process will be completed, ”the statement said. said.

A number of business owners “are reluctant to take on additional debt in an uncertain business environment,” the statement said. Business owners who did not use the scheme entered into other agreements directly with their banks, the statement said.

“The Covid-19 Loan Guarantee Scheme was just a small part of the ongoing assistance that banks offer to their clients and clients in financial distress.

“Data provided to the Reserve Bank of South Africa shows that as of February 2021, banks have provided financial assistance to their clients and clients in the amount of R293 billion – corporate received R165 billion and retail RR 128 billion – which accounted for 5.8% of the total amount of corporate loans. and retail credit risk, ”the statement said.

The statement added that the scheme had received 50,717 loan applications by Friday, of which 26% – or 13,324 – were approved by banks and were accepted by applicants.

“Fifty-six percent of the applications received were rejected because they did not meet the eligibility criteria for the scheme set by the Treasury and the Reserve Bank, or because they did not meet the banks’ risk criteria,” the statement said.

The Association emphasized that the government never planned a loan guarantee scheme involving grants and that companies that meet the criteria of recipients should be able to repay the loan.

President Cyril Ramaphosa is expected to speak to South Africa on Sunday night amid rising Covid-19 cases. Many expect stricter isolation bans to be tightened, which could affect a number of business sectors.

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