Ease terms of the Covid-19 loan scheme, government urged

The SA Private Equity and Venture Capital Association says more equitable terms are required between stakeholders if the government’s R200bn loan guarantee scheme is to help the country’s small and medium-sized businesses through the worst of the Covid-19 pandemic.

“The SA Private Equity and Venture Capital Association urges the government to review the conditions and requirements included in the guarantee scheme ... to ensure that it provides the necessary relief to businesses in desperate need of assistance,” the association’s CEO, Tanya van Lill, said on Friday.

The association believes banks are being far too risk-averse in extending loans in what are abnormal times for the whole economy.

The association recently conducted a survey of its members and found that only 28% of companies that applied for funding via the scheme were granted it and drew down on a facility, Van Lill said, adding that “many did not apply at all, given the onerous eligibility criteria”. 

The Treasury stated at the launch of the scheme that banks must apply “their normal risk evaluation and credit application processes” and that owners might be required to sign surety for the loans.

This implies that should the business fail to meet its obligations, entrepreneurs’ personal assets could be attached and liquidated to cover any shortfalls.

“It requires individuals to decide between the risk of losing their homes and trying to keep their businesses open and staff employed. They would have to make this unviable trade-off based on conditions that are completely out of their control,” said one of the association’s directors, Samantha Pokroy, who is also the founder of private equity group Sanari Capital.

Pokroy said many businesses are opting not to take the loans and are instead focusing on cost-cutting to get through the tough times, something that is contrary to the intentions of the scheme.

The slow uptake mirrors data provided by the Banking Association SA (Basa), which announced last week that loans amounting to R10.6bn under the scheme had been approved since it launched in mid-May, just 5% of the targeted available R200bn as announced by President Cyril Ramaphosa.

Basa’s data also revealed that 55% of eligible businesses that applied were declined as they “did not meet bank risk criteria”.

thompsonw@businesslive.co.za