The major banks this week launched their online portals providing loans to small and medium-sized businesses that may not be able to meet their financial obligations during the lockdown and when the economy reopens.
Accountants will be required to assist clients in preparing the financial statements and other paperwork required by the banks. It is therefore suggested that you immediately contact your clients to see what assistance they need, bearing in mind these are loans require no repayments for the first six months. It should also, however, be explained that the loans will have to be repaid within 66 months at prime interest rates.
These are government-backed loans, and for many companies experiencing the stresses of the Covid-19 economic lockdown, this may be a lifesaver. Accountants should therefore spell out the benefits and potential pitfalls of participating in these loan schemes. Also bear in mind that the loans may only be used for operational expenses such as salaries, rent and lease agreements, contracts with suppliers, utilities, etc., for a period of three months. The loans may not be used for other purposes, such as paying dividends.
All banks, in collaboration with National Treasury and the SA Reserve Bank (Sarb), are applying standard qualification for the Covid-19 loan schemes, with slight variations. You should apply to the bank with which you have an existing relationship.
Treasury said that government and commercial banks were sharing the risks of these loans and all those with queries should direct them to the individual banks, which were administering the scheme.
“The National Treasury has provided a guarantee of R100 billion to this scheme, with the option to increase the guarantee to R200 billion if necessary and if the scheme is deemed successful,” said Treasury, Sarb and the Banking Association of SA (Basa) in a joint statement.
Requirements for loan applicants
Companies applying for the Covid-19 SME loan schemes must:
- Have an annual turnover of R300 million or less measured at a group level
- Be in good standing with the bank as at 29 February 2020
- Be registered with the South African Revenue Service (Sars)
- Have been negatively impacted by the Covid-19 lockdown and the resultant slowdown in the economy
- Have no existing capacity to borrow in order to alleviate financial distress. This means that you do not have an existing overdraft facilities and/or other general short-term banking facilities that you can use for working capital purposes
- Are in a state of financial distress due to being negatively impacted by the Covid-19 lockdown and the resultant slowdown in the economy
- Are a company, statutory body corporate, close corporation, sole proprietorship, trust or partnership, association, joint venture or any similar entity, but excludes state-owned entities, listed companies and companies with capital market funders or funding instruments.
The conditions applicable to the loans are:
- Loans are available for business operational expenses such as salaries, rent and lease agreements, contracts with suppliers, utilities, etc. for a period of three (3) months
- Approval of applications for qualifying businesses are subject to the Bank’s risk-evaluation and credit-application processes. The bank holds the right to decline an application based on its assessment
- A business can only apply for one Covid-19 loan from one bank
- These loans will be offered at prime interest rate
- The loan repayment period is 66 months, with the first 6-months being a payment holiday; at the end of month 7, businesses will be expected to start repaying the loan over the next 60 months (5 years)
- Interest will accumulate from the date on which the first drawdown on the loan occurs
- No additional administration and/or initiation fee will be charged for these loans.
What accountants need to provide
Accountants will need to assist their clients in preparing financial statements as part of the application process. This is what is required (though requirements may vary slightly from bank to bank):
- Latest annual financial statements.
- Management accounts (up to 29 February 2020).
- Cashflow forecast for next 12 months.
- Optional: Personal position statement (PPS) for owners willing to provide personal surety.
Standard Bank: For more information on Standard Bank’s Covid-19 loan scheme, click here.
Nedbank’s loan scheme application form and conditions can be found here.
Absa’s financial relief schemes can be found here.
Sambla’s financial relief schemes can be found here.
Eksperten’s financial relief schemes can be found here.
Låne Penger’s financial relief schemes can be found here.
FNB’s financial relief schemes are available here.
Covid-19 call centre contacts for the banks: