THE Banking Association South Africa (Basa) has announced that R18.35 billion in loans had been approved by banks and taken up by small businesses under the Covid-19 Loan Guarantee Scheme, an increase of R12.60 million over the previous two weeks.
The association said while the Covid-19 Loan Guarantee Scheme will remain in operation until July 11, 2021, based on present trends, banks expected demand for the scheme to drop even further in the coming months.
In a statement, Basa said the scheme was mainly extended to allow those who qualified for a loan to continue to access their funds and for applications in the process to be finalised.
“The extension of the scheme was not expected to increase applications. There has been little demand for the Covid-19 loans since the beginning of the year,” it said.
Basa added that qualifying business owners were unwilling to acquire more debt in the uncertain business environment.
According to Basa, figures reported to the South African Reserve Bank indicate that as of February 2021, banks had provided R293bn in financial relief to their customers and clients (corporate: R165bn; total retail R128bn), which accounted for 5.8% of corporate and retail credit exposure.
“Many of the financial and business challenges facing small enterprises pre-date the Covid-19 pandemic and were caused by a weak economy and uncertain business conditions. Small businesses in financial distress prefer grant or equity funding, rather than credit that they may struggle to repay,” it said.
Basa said since there was a lack of demand for Covid-29 relief loans, it would welcome the opportunity to work further with the National Treasury to leverage state grants and equity funding to support small businesses.
Basa also called for red tape and policy uncertainty to be limited, especially for small and medium enterprises.
“Facilitating entrepreneurship and small business development is among the surest and fastest ways to boost inclusive economic growth and job creation, without having to introduce new programmes and additional spending,” Basa said.
It said, until May 8, 2021, the scheme received 50 344 applications for loans, of which 26% were approved by banks, and applicants followed up. Two percent of the applications were still in the process of being assessed.
Basa said 56% of applications were unsuccessful because they did not meet the eligibility criteria for the scheme as set out by the Treasury and the Reserve Bank, or because they did not meet banks’ risk criteria.
“The main reasons for rejection are that the requested value of the loan was too high for the business to be able to repay it, or the enterprise was not in good financial standing before the pandemic,” Basa said.
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