The application process for the Covid-19 Loan Scheme for Small and Medium Enterprises that was outlined by the president has officially opened.  Funding available is R200 billion back by the government.  This will be administered through major banking institutions so you would be required to submit your application with your banker. 

Who will quality?

  1. Any business – company,  close corporation, partnership, sole proprietor, body corporate but excludes any state-owned entities, listed companies, companies with capital market funders or funding instruments. 
  2. Have an annual turnover of R300 million or less measured at a group level for the financial year ended February 2020. 
  3. Are in good standing with your bank at 29 February 2020 
  4. Are registered with the South African Revenue Service (SARS)
  5. Have no existing facilities to borrow from to help alleviate the financial distress
  6. Have an existing relationship with the bank in question
  7. Have been negatively affected by COVID-19 lockdown and the resultant downturn of the economy
  8. The business can only apply with one banking institute.
  9. There is no BBBEE prerequisite for these loans

 

What documents will be required: 

  1. Completed application form;
  2. A detailed calculation of the facility needed for up to 3 months
  3. A detailed cash flow projection to support the sustainability of the business
  4. Up to date management accounts detailing expenses especially the qualifying expenses
  5. Details of the relevant expenses to be covered for the 3 months
  6. Most recent signed financial statements 
  7. Proof of registration with SARS
  8. Registration documents of the entity 
  9. Details of each director/member/shareholder/partners/trustee
  10. If the applicant has applied at a different financial institution – proof that the application was declined 
  11. Description of how the business has been impacted by COVID-19
  12. Additional supporting documents may be required by the relevant bankers 

 

Fees and costs 

Apart from interest, there will be no additional cost to this application. 

 

Interest rates 

The interest rates on these loans will be at prime lending rate. At the time of writing this, the prime lending rate is 7,75%.  The interest will apply from the first drawdown date 

 

Benefits of these loans

The funds will be paid directly into the applications bank account and the applicant makes the payouts 

There is a 6-month payment holiday and the repayment starts in the 7th month. Interest will accumulate form the time the first drawdown is made. And the term of repayment will be 5 years to the total term is 66 months. (including the 6 month payment holiday)

The interest rate is linked to prime – currently 7.75% 

The loan can be repaid at any time. From internal cash flow or a loan from any other institution. 

 

Important points to note

  1. The applicant can only have one Covid-19 loan of this nature. 
  2. If the applicant has more that one loan it will be seen as an immediate default and the loans will be repayable immediately. 
  3. Banks are allowed to share information on Covid-19 loan with SARB 
  4. The application with go through the normal bank risk evaluation
  5. The directors/shareholders/members might be asked to sign surety 
  6. No amendments apart from the advanced repayment of the loan may be made to the loan agreement. 
  7. Loan payments will take place via debit order. 

 

Expenses that the loan will cover

  1. Salaries and wages applied from 1 March 2020
    • Employees – cost to company, pension fund contributions, medical and income taxes – this excludes retrenchment payments
    • Directors, trustees, members and other officers – excluding loan repayments, profit, distributions, directors or trustees fees, management fees or royalty fees 
  2. Rentals and lease payments
  3. Utilities 
  4. Insurance premium 
  5. Other operating expenses – security services, cash in transit services, cleaning and maintenance services
  6. Supply chain costs, – indirect and direct costs and expenses associated with the supply of goods 

 

Restrictions 

  1. Loans may not be used to make any distributions to shareholders, trustees, beneficiaries, partners or directors – only salary payments allowed
  2. The loan may not be used to repay or prepay existing debt at any banking institution
  3. Until the loan is repaid 
    • No distributions to shareholders/directors/members/trustees
    • No repayment of loans from Shareholders/members/trustees/beneficiaries/partners or directors 

You can contact your banker directly to get this application going.  If you require assistance with the financial statement, management accounts, or forecast or any assistance to submit this application please contact our offices. 

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