The Covid-19 pandemic has had a devastating effect on many small and medium-sized businesses. To help businesses and their employees to get through these difficult times, Investec and other banks have partnered with National Treasury and the SA Reserve Bank to create a R200bn Covid-19 Loan Scheme.

The idea behind the scheme is to help distressed businesses to get through the lockdown period, says Adam Orlin, Head of Investec for Business. “The loan will cover up to three months of operational expenses, drawn down monthly,” he says. 

Businesses will be limited to one loan, linked to prime, and will not have to make any payments for the first six months (capital or interest). From month 7, Businesses will then have five years to pay off the loan, which amortised over the five years.

Orlin explains that the loan is designed to cover day-to-day expenses, such as salaries, rental, pension, medical aid, utilities, tax, supplier payments and other similar costs.

“The terms are designed in such a way that, as the economy opens up, this loan can help you get back up and running,” he says.

There are some restrictions. Applicants must show they are in distress as a result of the Covid-19 lockdown and the loan cannot be used to pay dividends, shareholder loan accounts or to settle any existing bank debt or other loan funding.  No distributions or repayment of director loans are allowed until the loan is repaid in full.

“The idea is simply to keep the doors open through this tough time,” he says. 

Only one loan per business is allowed, through one bank with which the business has an existing business relationship. The business will also need to be in good standing with its bank and businesses will need to use existing facilities with the bank before becoming eligible under the scheme – in other words have no further capacity to borrow.

The loan is only available to businesses with less than R300m in turnover at a group level. Individuals and Listed companies are excluded, as are state-owned enterprises and those businesses with capital market funding. The businesses will also need to be registered with SARS.

Businesses wanting to take out a loan under the scheme will need to submit documentation supporting their applications (see link below) and Orlin says that banks will apply their normal credit processes in approving the loans.

Orlin says there are no fees and costs attached to the loans and no penalties, should the business be able to settle the loan early.

Orlin advises businesses to consider the timing of their applications depending on each unique situation, to either assist in getting their business through lockdown or for when they think the business will be coming out of lockdown to get the most out of the loan.