The Loan Guarantee Scheme (LGS), first announced by President Cyril Ramaphosa on April 21, 2020, and which was scheduled to expire on April 11, will remain in operation for a further three months, enabling those who have qualified for a loan to continue to access their funds and for applications that are still in process to be finalised.

The scheme, which is part of the economic stimulus package and was designed to support small businesses that were experiencing financial distress as a result of the Covid-19 pandemic, will not be extended beyond July 11.

Having received 49 957 applications, up until March 27, banks had approved 14 827 loans to the value of R18.16-billion.

The number of loan applications received since the beginning of this year to March 27 is 1 787. Of these, banks approved 511 applications, of which only 97 were taken up by clients.

Eighty-two per cent of the approved loans, with a value of R6.77-billion, went to enterprises with a turnover of up to R20-million. The average value of a loan under the scheme is R1.24-million.

The LGS was launched by the National Treasury, the South African Reserve Bank and the Banking Association South Africa (Basa) on May 12, 2020.

Until July 11, the LGS will continue to service all loans advanced, for up to five years. The further extension of three months will enable an orderly winding down of the scheme and enable those businesses who have applications already lodged to be assessed.

However, a joint statement by the National Treasury, the South African Reserve Bank and Basa states that the LGS has not been as effective as originally envisaged, as many distressed companies have been reluctant to assume more liabilities (further loans) with little certainty of the length and severity of the economic impact of the Covid-19 pandemic.

Further, the parties note that in addition to the LGS, banks have also provided significantly more support to their small business customers through their own balance sheets, totalling at least R33-billion in payment relief, between April and November 2020.

As such, the three parties expect demand for loans from the LGS to decrease even further in the coming months.