The Covid-19 Loan Guarantee Scheme will not be accepting new applications after June 28, though it will remain in operation until July 11 to allow for in-process applications to be finalised.

As at June 19, more than R18.3-billion in loans had been approved by banks and taken up by small businesses under the Covid-19 Loan Guarantee Scheme.

Demand for the scheme has dropped sharply since April and, in the past month, only 65 loans (with a value of R35.7-million) have been approved by banks.

In a statement on June 28, the Banking Association of South Africa (Basa) said that while the scheme did not match some of its initial expectations, it succeeded in helping those enterprises that qualified to stay in business and save jobs.

However, it noted that many business owners were reluctant to take on more debt in a weak and uncertain business environment; or they have made their own financial relief arrangements directly with their banks.

The Covid-19 Loan Guarantee Scheme was only a small part of the ongoing relief that banks offer their clients and customers who are in financial distress, Basa said, noting that figures reported to the South African Reserve Bank (SARB) indicate that, as at the end of February, banks had provided R293-billion in financial relief to their customers and clients, which accounted for 5.8% of the total 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, load-shedding and uncertain business conditions.

Owing to this, BASA has called for the reduction of red tape and policy uncertainty, and for it to be made easier to do business, especially for small and medium-sized 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,” it said.

As at June 25, the scheme received 50 717 applications for loans, of which 26% (or 13 324) were approved by banks and were taken up by the applicants.

Fifty-six per cent of applications received were rejected because they did not meet the eligibility criteria for the scheme, as set out by the National Treasury and the SARB, or because they did not meet the bank’s risk criteria.

The main reasons for rejection were that the requested value of the loan was 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.

Government never envisaged the loan guarantee scheme to provide grants and qualifying recipients must be able to repay the loan.

Eighty-two per cent of the loans approved (with a value of R6.9-billion) went to enterprises with a turnover of up to R20-million.

The average value of a loan under the scheme is R1.2-million.