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- Banks will begin launching state-backed Covid-19 commercial loans in the coming weeks, with an offer of up to R200 billion.
- The Treasury has provided an overview of how the scheme will work.
- Businesses earning up to R300 million can get cash, with a six-month vacation payment and another five years after that payment.
- If things go well, banks share the profits. If not, all but 6% of the loans are underwritten by the state.
- For more stories, visit www.BusinessInsider.co.za.
In the coming weeks, small businesses – and those with annual turnover of up to R300 million – will be able to start applying for government-backed Covid-19 special loans from South African commercial banks.
Some of the details, including the single interest rate at which loan prices will be set, must still come from the banks themselves. But on Friday the National Treasury provided an overview of how the scheme will work.
The loans will be available to cover operating expenses, including rents, wages and supplier payments, for up to three months, the Treasury said, with monthly reductions.
Any company with a turnover of less than R300 million and which is in order can request a loan of this type from its existing banker, but can request a single Covid-19 loan.
The terms will be commercial, and “business owners may be required to sign the loan guarantee,” the Treasury said, although that will depend on the lending bank. As with standard loans, banks are under no obligation to make any requested loan.
The interest rate will be linked to the repurchase rate, which is currently at record lows.
Interest begins to accrue as soon as the first of the three installments is withdrawn.
The big benefit for borrowers is in the repayment deadlines: no money should be returned for six months from the first withdrawal. After that, the refund can span up to five years, making a total of five and a half years to pay.
Banks have many incentives to make such loans.
“The scheme works on the principle that profits and losses are ultimately shared between the government and the banks,” the Treasury said.
All the benefits of the loans go back to a collective pot, where they are used for the first time to compensate the losses of the bad loans. However, if the overall scheme goes wrong, the banks will only bear 6% of the damage, a maximum of R12 billion.
“Any additional loss will eventually be covered by the fiscus,” the Treasury said.
(Compiled by Phillip de Wet.)
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