The government's R15bn bounce-back scheme to aid businesses hit by Covid, unrest and floods has only approved R140m in loans amid rising interest rates and load-shedding.
The National Treasury, which is facilitating the scheme for small and medium enterprises (SMEs) with banks, said of the approved loans, R77m have been disbursed.
The Treasury said banks participating in the scheme have received 7,000 applications from sectors including business & administration, personal care, fitness, hair & beauty and transport, delivery & storage.
“About 4,500 have been processed and the remaining 2,500 are still work in progress,” said Treasury.
SMEs have until May 2023 to participate in the scheme, whose conditions are less onerous than those for the R200bn loan guarantee.
The Treasury said since the scheme came into effect in May, demand for it has been curbed by the way load-shedding and rising interest rates and input costs have hit SMEs.
Eskom implemented stage 6 load-shedding towards the end of June, while the central bank hiked the repurchase rate by 75 basis points to 5.5% last month, taking the prime lending rate to 9%.
Gordon Little, CEO of FNB Commercial, said the scheme is for all qualifying SMEs, irrespective of whether they were directly affected by Covid lockdowns, the 2021 protests or recent flooding in KwaZulu-Natal.
“These bounce-back loans have the potential to act as a real catalyst of growth for SMEs, which is more important than ever in terms of contributing to the country’s sustainable economic recovery,” he said, adding that unlike their predecessors, these loans are simpler and applicants are not constrained in how they can use them.
Little said loan options range from R10,000 to R10m. To encourage uptake and ensure businesses are not financially burdened, the scheme comes with a variable interest rate of prime plus 3%. Successful applicants have five years to repay the capital, with no early settlement penalty.
These bounce-back loans have the potential to act as a real catalyst of growth for SMEs, which is more important than ever in terms of contributing to the country’s sustainable economic recovery
— Gordon Little, FNB Commercial CEO
“We are confident this bounce-back loan scheme has come at precisely the right time for our country and we are excited about the prospect of being instrumental in reigniting SME growth in South Africa and helping to put the sector on a sustainable growth path.”
The Treasury said the loans “may be used for capital investment necessary for a bouncing back, including solar for businesses and residences where businesses are run. In this way we hope to reduce some operational constraints also affecting SMEs.”
Participating banks' effective date was April 22 and they will thus make the loans available until April 21 next year.
John Dludlu, CEO of the Small Business Institute, said the numbers are disappointing given the return of the “inflation monster”, rising interest rates and the cost-of-living crisis, from which small business owners were not immune.
He said it was a pity the scheme had been undermined by prevailing economic conditions and that to its credit, the government had gone out of its way to ensure the scheme was attractive to lenders and borrowers and was the product of consultation.
“Our plea is for the government to keep investigating refinements with roleplayers in the small-business ecosystem,” Dludlu said.
“Although they are generally resilient, our small businesses need all the help they can get, including the timeous settlement of their invoices, [being] spared from squabbles between organs of state and insulated from red tape,” he said.
The R500bn Covid stimulus package announced in April 2020 included a R200bn loan guarantee scheme (LGS) for companies with a turnover of less than R300m a year.
However, the LGS came under fire for failing to live up to its expectations after less than R20bn in loans were approved.
To improve take-up of the bounce-back scheme, the eligibility criteria, including the collateral requirement, were loosened.
The Treasury said the new scheme has less restrictions on the use of funds, but still prohibits “nonsalary distributions to shareholders and directors of the businesses, as well as the use of funds in the repayment of any other bank facilities”. The LGS requires funds be used for operational expenses only.
The bounce-back scheme gives businesses an option to extend their loan maturities by up to five years to a maximum tenor of 10 years, whereas tenor is fixed for the LGS.
Another major difference is that under the new scheme the Treasury assumes the first 20.5% of default losses by the underlying clients, whereas under the LGS the first loss absorption is for banks.
The bounce-back scheme is also available to nonbank lenders who can access up to R100m through participating banks to lend to their underlying clients, whereas the LGS is not available to nonbank lenders.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.