Covid-19 Relief Loan Scheme

The Covid-19 loan scheme is the outcome of the South African Reserve Bank (SARB) and the National Treasury partnering with members of the Banking Association South Africa (BASA) to help small and medium enterprises, support the economy and save jobs. The scheme will allow qualifying businesses to apply for loan funding from their bank for up to three months for certain operational costs, which loan amount will be drawn down monthly.

Salient terms of the loan

• The interest rate on the loan is priced at the prime lending rate by all participating banks.
• The prime lending rate will apply from the date of first draw down and is calculated as a nominal annual compounded monthly rate (NACM).
• The funds will be paid monthly directly into the client’s nominated account, which has to be in his/her name. Clients will be responsible for payment to third parties.
• The repayment profile of this loan compromises a payment holiday for the first 6 months (interest is capitalised during this period) from the date of the first drawdown. From month seven, the outstanding capital and interest roll-up from the first six months will be amortised over a period of five years (60 months).
• A business can prepay the loan without penalty, at any time, through internally generated cashflows or a refinancing by another bank.
• A business may only have one COVID-19 loan of this nature and must elect a single bank with which it has an existing relationship of transactional banking or lending to make their application.
• If a business has more than one loan, it would be considered an immediate event of default and the loan becomes repayable.
• Banks are entitled to share information relating to all applications for and granting of COVID-19 loans with the SARB and with other banks providing COVID-19 loans.
• No amounts repaid or prepaid in terms of this loan may be redrawn.
• Banks will follow a credit process to confirm the eligibility of the client and to approve the loan.
• The loan amount is based on specific operational expenditures of the business and the proceeds of this loan can only be used for those approved expenses. These are expenses that are immediately required to “keep the doors open”.
• Banks may request suretyships or guarantees (or other security).
• The loans will have priority on cashflow repayment in respect of the bank’s existing debt facilities with the client.
• Banks shall have the right to review either the quantum and/or the disbursement profile of the loan if the bank becomes aware of any new, relevant or undisclosed information in respect of the loan.
• All loans shall be made subject to the further terms and conditions contained in the loan agreement.

Qualifying Expenses

The loan is intended to cover specific operational expenditures of the business and are limited to:

1. Salaries and wages which applied at 1 March 2020 to:
   1. employees (gross payroll, i.e. cost to company, including income tax remittances, pension, medical aid etc but specifically excluding payments in relation to retrenchments)
   2. directors, trustees, members and other like officers (but specifically excluding payments in relation to retrenchments, loan repayments, profit, shareholder or member distributions, directors', members’, trustees’ and/or management fees and/or royalty payments to directors, members, trustees and/or shareholders)
2. Rentals and lease payments - including lease/rental payments due to banks under lease/rental (or similar) agreements in force on or prior to 29 February 2020
3. Utilities
4. Insurance premiums
5. Other operating expenses limited to security services, cash in transit services, cleaning and maintenance services
6. Supply chain costs, being the direct and indirect costs and expenses associated with the domestic and/or foreign supply of goods, materials and services to a business, including (without limitation), the costs and expenses of importing and exporting goods and materials, including all logistic and custom service providers relating thereto, upon the normal terms and conditions of the relevant suppliers

Loan restrictions

• Loan amounts may not be used to pay any distributions of any nature whatsoever to shareholders, trustees, beneficiaries, partners and/or directors (save for reasonable salary payments to any such parties) and/or to repay or prepay any shareholder, trustee, beneficiary, partner and/or director loans or any interest thereon
• The loan amounts may not be used to repay or prepay any existing bank debt facilities at any bank
• Until the loan is repaid in full, the following are prohibited:
  • any distributions of any nature whatsoever to shareholders, trustees, beneficiaries, partners and/or directors (excluding regular and reasonable salaries)
  • the repayment or prepayment of shareholder, trustee, beneficiary, partner and/or director loans or any interest thereon

Fees and costs

This may vary from bank to bank.

Eligible businesses

An eligible business is defined as:

• any company, statutory body corporate, close corporation, sole proprietorship, trust or partnership, association, joint venture or any similar entity, but excludes state owned entities, listed companies and companies with capital market funders or funding instruments
• having an annual turnover below R300 million (measured at group level) where annual turnover is measured as the aggregate gross revenue of the group of which a business is a member for the most recent financial year or the 12-month period ending on or before 29 February 2020
• having an existing relationship of either lending or transactional banking with the bank
• being in good standing with the bank as at 29 February 2020
• being registered with the South African Revenue Services
• having no existing capacity to borrow
• being in financial distress as a result of the lockdown
• an entity that has declared that it has not applied for this relief at any other bank

What documents will I need to submit with my application?

This will vary from bank to bank and may include some or all of the following:

• A completed application form
• A calculation of the facility required by the business to fund up to three months of qualifying expenses.
• A detailed cash flow projection to support and substantiate the facility requested.
• Year to date management accounts noting the current financial position and financial performance (including cashflows) of the business.
• Most recent financial statements
• Proof that the entity is registered with SARS
• Constitutional documents of the applicant
• Where the entity has already applied for this loan at another bank, proof that the application was declined including reasons (if any)
• If required, additional supporting evidence to substantiate specific qualifying operational expenses (e.g. rates bills, rental agreements, etc)