Finance minister Tito Mboweni. Picture: RUVAN BOSHOFF
Finance minister Tito Mboweni. Picture: RUVAN BOSHOFF

Finance minister Tito Mboweni has said he expects the loan guarantee scheme announced by President Cyril Ramaphosa to be operational by next week.

“My understanding is that the scheme is ready to go next week, and it will [be operational] for the foreseeable period ahead,” Mboweni said at a media briefing on Friday.

The implementation of a loan scheme is yet another initiative by the Reserve Bank in conjunction with commercial banks put in place to help consumers and businesses survive the economic fallout of the Covid-19 pandemic.

Mboweni’s remarks follow the announcement by Ramaphosa on Tuesday evening regarding the creation of a R200bn loan guarantee scheme designed to help banks and hundreds of thousands of small businesses survive.

The National Treasury has released a fact sheet on how the scheme will work.

The initial phase will see R100bn made available to banks to continue lending to distressed businesses with turnover of R300m or less a year. These funds will be made available to the banks through a facility provided by the Reserve Bank, which will allow them to borrow at or below the repo rate, currently 4.25% a year.

Eligible businesses must have been in good standing with their banks prior to the lockdown. Business owners may be required to sign surety for the loans, and the applications will be handled through the banks’ normal credit processes.

The lending will entail banks extending “Covid-19 loans” to distressed businesses that can be used for salaries, rent, and other contractual obligations. “Loans will cover up to three months of operational costs and will be drawn down monthly,” said the Treasury.

All Covid-19 loans will be priced at the same interest rate, regardless of the client or the bank concerned, but the Treasury did not elaborate on what the interest rate will be.

Based on the proposals submitted to the president, the interest rates will track the repo rate but be lower than the prime lending rate, currently 7.75% a year.

In terms of repayment, business owners will enjoy a six-month repayment holiday although interest will be accrue from the outset. Businesses will have a maximum of 60 months to repay the loan.

The Treasury says profits and losses from the loans will be shared between the banks and the government, although the exact split was not stated.

The banks will be charged a guarantee fee by the Treasury in relation to the scheme and, in return for this compensation, the banks’ losses on loans will be capped at 6% of the size of the loan. “Any further losses will be covered by the fiscus,” the document states.

More details will be forthcoming in a directive from the Reserve Bank is expected to provide the banks in the coming days.

thompsonw@businesslive.co.za