South African banks are now ready to accept loan applications from COVID-19 distressed businesses, says the National Treasury.
The activation of the loan guarantee scheme comes after the National Treasury, the South African Reserve Bank, and the Banking Association of South Africa, finalised the legal details.
The development follows President Cyril Ramaphosa’s announcement of the loan guarantee scheme in April.
The loan guarantee scheme is defined as an initiative that provides loans, guaranteed by the government, to businesses with an annual turnover of less than R300 million to meet some of their operational expenses.
“The initial set of participating banks (ABSA, First National Bank, Investec, Mercantile Bank, Nedbank and Standard Bank) are ready to accept loan applications from distressed businesses that bank with them,” said the parties in a joint statement.
“Funds borrowed through this scheme can be used for operational expenses such as salaries, rent and lease agreements, contracts with suppliers, etc,” said the Treasury.
The Treasury had initially only provided a guarantee of R100 billion to this scheme, however, should the scheme be deemed successful and if necessary, the guarantee will be increased to R200 billion.
Government and commercial banks will also be sharing the risks of these loans soon.