COVID-19 Business Loans in South Africa and How They will Work | Legal Articles


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COVID-19 Business Loans in South Africa and How They will Work

Struggling businesses can now apply for COVID-19 business loans in South Africa, according to the Treasury.

During President Ramaphosa’s address to the nation regarding financial support, it was made clear that R200 billion will be made available to much-needed aid for South African businesses.

business loans in south africa

COVID-19 Business Loans in South Africa – Applying for Business Funding in South Africa

The coronavirus loan scheme for businesses has been collectively developed by Treasury, the South African Reserve Bank and a number of commercial banks in the country.

However, it’s extremely important for the details of this loan scheme to made clear to all business owners who are thinking of applying.

Here are some details of how the funding will be made available:

  • The R200 billion allocation will be made available for new loans to existing customers
  • The initial phase will be made up of R100 billion
  • COVID-19 business loans in South Africa will be made available to eligible businesses that are currently in good standing with their respective commercial bank
  • Eligible businesses must have an annual turnover of less than R300 million
  • Funds allocated to businesses via this scheme may be used for operational expenses including but not limited to:
    • Rent and lease agreements
    • Contracts with suppliers
    • Employee salaries
  • Loans provided will serve to cover up to three months of operational costs and will be made available on a monthly basis
  • South African banks are under no legal obligation to award COVID-19 loans. Those that do will make use of their usual credit-application and risk evaluation processes.
  • Business owners may be required to sign surety for the loan
  • Only one COVID-19 loan will be issued to each business with a successful application
  • A payment holiday of 6 months applies and will commence from the date of the first drawdown. However, interest will continue to accumulate from the same date
  • Loans offered by banks participating in the scheme will be offered at a single, agreed lending rate across the board
  • The scheme will be systematically rolled out by participating banks over the coming weeks
  • Businesses have a maximum of 60 months to repay the full loan amount and interest from the date of the payment holiday ending. Borrowers may repay their loans ahead of schedule

Collaborative Business Funding in South Africa

Treasury has defined the principle of this loan scheme as collaborative, ultimately meaning that profits and losses are shared between the banks and the South African Government.

The scheme will receive the difference between the rate at which the banks lend the money, together with limited costs.

According to Treasury, “this will include a guarantee fee charged to the banks in relation to the scheme. These profits will be used to offset any losses that the scheme makes.”

Furthermore, if the scheme incurs additional losses, these will be absorbed by the participating banks, although capped at 6% of the size of the loan. Any further losses will be covered by the fiscus.

Van Deventer & Van Deventer Incorporated - Attorneys in Cape Town and Johannesburg

COVID-19 business loans in South Africa aim to provide much-needed financial aid in the wake of the global pandemic.

However, it’s crucial to understand the terms and conditions of these loans, as well as what makes a business eligible.

For more information regarding this loan scheme, or for legal assistance with understanding the fine print, please don’t hesitate to contact our attorneys.

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