Covid-19 Relief Funds – Unpacking the Loan Guarantee Scheme for Small Businesses

Covid-19 Loan Guarantee Scheme

The Government has made funds available in an effort to assist small to medium-sized entities during this time. Most of the qualifying criteria and information is the same for all banks, however, some credit and risk assessments may differ. The applications opened on Tuesday, May 12th.

Total fund value: R100bn with an option to increase to R200bn if the scheme is deemed to be successful.

Qualifying criteria:

• A company, statutory body corporate, close corporation, a sole proprietorship, trust or partnership, association, joint venture, or any similar entity, but excluding state-owned entities, listed companies, and companies with capital market funders or funding instruments.
• Have an existing banking relationship with the bank you apply with.
• Have an annual turnover of R300 million or less, measured at a group level.
• Are in good standing with the Bank as at 29 February 2020.
• Have no existing capacity to borrow that can help alleviate financial distress; this means that you do not have an existing overdraft facility/(ies) and/or other general short-term banking facilities that you can use for working capital purposes.
• Are in a state of financial distress due to being negatively impacted by the Covid-19 lockdown and the resultant slowdown in the economy.

Important info/terms to note:

Loans are available for business operational expenses such as salaries, rent and lease agreements, contracts with suppliers, utilities, etc. for a period of three (3) months.

Approval of applications for qualifying businesses is subject to the Bank’s risk-evaluation and credit-application processes. The Bank holds the right to decline an application based on its assessment.

Important to note:

• A business can only apply for one COVID-19 loan from one bank
• These loans will be offered at the repo rate plus 3.5%
• The loan repayment period is 66 months, with the first 6 months being a payment holiday; at the end of month 7, businesses will be expected to start repaying the loan over the next 60 months (5 years)
• Interest will accumulate from the date on which the first drawdown on the loan occurs
• No additional administration and/or initiation fee will be charged for these loans

The following restrictions apply should customers qualify for the loan:

• The loan cannot be used for payment of dividends and shareholder loans; payment of such loans is restricted until the COVID-19 loan has been repaid in full
• The loan cannot be used to pay existing debts and is only for future operational expenses
• The owners may be required to sign personal surety/personal guarantee
• The loan amount cannot be used to pay retrenchment packages.

Info required when applying:

1. View of business turnover over the last 12 months
2. View of business expenses, current debt repayments and net profit before tax over the last 12-month period
3. Business’s Income Tax Number
4. Description of how the business has been impacted by COVID-19
5. A list of the business’s monthly operational expenses for three months for which a loan is required, broken down by:
6. Salary and wages payments
7. Rental and lease payments
8. Supplier payments
9. Utility payments
10. Other operating expenses.

Please note that additional documentation may be requested once your application has been received, based on our assessment and verification criteria. This may include Annual Financial Statements and/or proof of income and expenses.

Hobbs Sinclair have set up a specialist division to assist clients with all Covid-19 relief measures offered by the government, tax planning, and business restructuring, payment prioritising and business rescue. Please contact us if you are seeking advice.