New Covid-19 loan guarantee scheme set to be implemented from next week

The implementation of a loan scheme is yet another initiative by the Reserve Bank in conjunction with commercial banks put in place to help consumers and businesses survive the economic fallout of the Covid-19 pandemic.

Mboweni’s remarks follow the announcement by Ramaphosa on Tuesday evening regarding the creation of a R200bn loan guarantee scheme designed to help banks and hundreds of thousands of small businesses survive.

The National Treasury has released a fact sheet on how the scheme will work.

The initial phase will see R100bn made available to banks to continue lending to distressed businesses with a turnover of R300m or less a year. These funds will be made available to the banks through a facility provided by the Reserve Bank, which will allow them to borrow at or below the repo rate, currently 4.25% a year.

Eligible businesses must have been in good standing with their banks prior to the lockdown. Business owners may be required to sign surety for the loans, and the applications will be handled through the banks’ normal credit processes.

The lending will entail banks extending “Covid-19 loans” to distressed businesses that can be used for salaries, rent, and other contractual obligations. “Loans will cover up to three months of operational costs and will be drawn down monthly,” said the Treasury.

All Covid-19 loans will be priced at the same interest rate, regardless of the client or the bank concerned, but the Treasury did not elaborate on what the interest rate will be.