‘Bounce Back’ billions on offer​

A R15bn credit guarantee scheme to help small and medium businesses recover from the ravages of Covid-19, the July 2021 riots and recent flooding in KwaZulu-Natal has been welcomed, but some say it may be too late for some businesses.

The Bounce Back Support Scheme, which was first signalled by finance minister Enoch Godongwana in February’s budget, came into effect this week to offer funding to qualifying businesses to grow the economy and create jobs, the National Treasury said in a statement.

Specifically, it is expected to help the recovery of businesses that are picking up the pieces after the pandemic, the July 2021 riots and the floods, the Treasury said.

Vukile Davidson, the chief director of financial markets and stability for the National Treasury, said that even though the Bounce Back scheme could be perceived as being late in the context of when the pandemic first arrived, it is really “part of a phase” of helping small businesses with their “re-emergence and recovery”.  

The June 2020 loan guarantee scheme was aimed at “minimising the worst of the impact related to the most severe part of the lockdown”. Seen in this context, Davidson said, the new programme “may not be as late” as some perceive.

The 2020 scheme was part of an overall R200bn loan guarantee package introduced by the government.  Only about R18bn was taken up.

Commenting on the limited uptake, Davidson said small business owners often have  “personal finances and business finances that are commingled”, resulting in a lot of stress and anxiety about taking on more debt.

Based on the lessons learnt from 2020, Davidson said the Treasury has dropped “the requirement of collateral” for small businesses wanting to access the latest scheme, whereas previously it had been required.

He said many businesses had lost collateral through, for example, buildings or inventory being damaged or lost during the violence.  “We thought collateral was an unnecessary constraint.

The Treasury has also “eased the definition relating to other eligibility criteria”, whereas previously it they had “quite specific criteria about what was a Covid-19-affected business”. 

Stanlib chief economist Kevin Lings said the timing of this sort of scheme is critical, and “clearly, given how many businesses failed during the Covid lockdown, this is a little late in terms of dealing with the impact of Covid”.

Lings said this was demonstrated in the 1.8-million jobs lost at the peak of the pandemic, many of which were with small businesses that had permanently shut their doors.

He said for schemes to “make the biggest impact, you would want these types of measures to be driven harder during the worst of Covid lockdowns and at the time when businesses would have actually been failing”.

He said the same applies to the July 2021 violence and unrest, which occurred almost a year ago.

But even with better timing, such as when the government offered assistance through its 2020 loan guarantee scheme as the pandemic first hit, there was very little uptake. This  may have been due to the complexity in accessing the scheme, Lings said.

Vukile Davidson, the chief director of financial markets and stability for the National Treasury, said that even though the Bounce Back scheme could be perceived as being late in the context of when the pandemic first arrived, it is really “part of a phase” of helping small businesses with their “re-emergence and recovery”.  

The June 2020 loan guarantee scheme was aimed at “minimising the worst of the impact related to the most severe part of the lockdown”. Seen in this context, Davidson said, the new programme “may not be as late” as some perceive.

The 2020 scheme was part of an overall R200bn loan guarantee package introduced by the government.  Only about R18bn was taken up.

Commenting on the limited uptake, Davidson said small business owners often have  “personal finances and business finances that are commingled”, resulting in a lot of stress and anxiety about taking on more debt.

Based on the lessons learnt from 2020, Davidson said the Treasury has dropped “the requirement of collateral” for small businesses wanting to access the latest scheme, whereas previously it had been required.

He said many businesses had lost collateral through, for example, buildings or inventory being damaged or lost during the violence.  “We thought collateral was an unnecessary constraint.”

The R15bn Bounce Back scheme is available to businesses with a maximum turnover of R100m a year

“We have also worked with development finance institutions and non-bank SME providers for this scheme. They will still have to go through the banks, but we’ve allowed them  to access the facilities using banks as the agents for them. Banks’ participation is directly facilitated through the guarantee facilitated by the Reserve Bank.”

The R15bn Bounce Back scheme is available to businesses with a maximum turnover of R100m a year. The maximum loan is R10m per business and the minimum loan is R10,000.

The Treasury said loans would be at a preferential capped rate (repo plus 6.5%) and that the government and lenders — participating banks, development finance institutions and non-bank SME finance providers —  are sharing the risk of non-repayment of these loans,  with the government taking the first 20.5% of any losses.

Businesses have to repay the loan within five years after any deferred interest period agreed to by the lenders.

John Dludlu, CEO of the Small Business Institute, said this latest version “appears to have taken into account previous failures” and that “the inclusion of commercial, non-traditional financiers and development finance institutions is helpful given the capacity challenges faced by the state”.

Dludlu said a lesson from past interventions is that simplicity is key to getting businesses to take up the scheme.

“The SME ecosystem has been advocating for something like this, especially the 'first loss' element in financial assistance. Hopefully, SMEs, especially those with high growth potential, will utilise this scheme,” said Dludlu. “The country's job crisis can only be resolved by thriving small businesses.”

Pan African Investment & Research chief economist Iraj Abedian said the credit guarantee scheme may be “too little in proportion to the damage that has been done and the needs of SMEs ... [but] can the government afford more? No.”

Abedian said the challenge in rolling out such a scheme is that SA's banks are not especially good at “assessing who is an eligible small business”.  And the criteria big banks use for small business loans are the same ones they apply to “big business with big balance sheets, and SMEs don’t have that”, which makes it difficult for small companies to access finance even under normal circumstances.

The Treasury’s Davidson acknowledged there are “structural” problems in the system that make it difficult for SMEs globally and locally to secure financing from banks, but said the aim of the scheme is to help alleviate short-term challenges as a result of a “once-in-a 100-year event such as Covid” and other crises, such as the flooding and July 2021 riots. 

“We don’t think it is a panacea for all the structural issues that still need to be addressed over the long term,” he said.

Palesa Phili, CEO of the Durban Chamber of Commerce & Industry, was optimistic the Bounce Back Scheme would help businesses resume operations. She said it is critical for the government to work with businesses to ensure funds are fairly and transparently allocated.  

But Kganki Matabane, CEO of the Black Business Council, said the scheme is not the right mechanism to assist businesses and will not work. 

“What businesses do not need is loans, they need grants and blended funding. We feel this scheme is going to fail because it is exactly the same as the R200bn loan guarantee scheme, but they changed the name,” he said.

Matabane said businesses will not qualify because they have been under financial strain due to Covid and will be deemed credit risks. He said a higher interest rate environment will also add pressure on repayment of the loans.