During July, the government announced that the COVID-19 Loan Guarantee Scheme – set up to take pressure off small businesses negatively affected by lockdown measures – had been amended to make it more accessible.

However a recent poll by Tourism Update’s sister publication, Travel News, indicated that only 6% of travel and tourism businesses that applied for Phase II of the scheme had been granted the loan. This seemingly indicates that the scheme has remained out of reach for the travel sector.

Owner of Travel VIP, Paula Varges Martini, reapplied for the Phase II loan after her Phase I application was declined by her bank due to “lack of industry affordability”. Although the revised conditions of the Phase II loan seemed more in line with the reality of the situation in the travel industry, Paula ultimately received notification that her second application had also been declined.

Owner of Muzi Safari Tours, Muzi Malandula, said he had applied for the COVID-19 loan guarantee scheme through his bank, but had never even received a response back from them.

Owner of East Cape Tours, Colin Dilland, said he had applied for the loan scheme in early May with both Nedbank and FNB. He has been back and forth with the banks ever since, as they have requested streams of additional documentation over the last few months.

Dilland said the introduction of the Phase II scheme had slowed the application process even further, as he had to resubmit documentation when the application requirements were changed. He is still hopeful that he will receive the loan in the next month, which he says will help him to revive his business as SA borders reopen.

Dilland described the application process as being “a complete nightmare” and said it was disappointing that no one seemed to be able to access the loans, which had been specifically set up to help business through this period.

Margi Butler, owner of Stone Cutters Lodge, is the first tourism business owner that Tourism Update was able to track down who has been able to report that her loan scheme application was successful.

She said she applied for the loan online at the beginning of lockdown and was paid out by Standard Bank 30 days later for the exact funds that she had requested.

Butler said the loan’s interest rate was reasonable and that the terms, which required her to start repaying the funds in December, had helped her business to make it through the last few months without income. As bookings were now starting to flow in again she was confident that she would be able to meet the repayment conditions.

Increase in uptake

According to the Banking Association of South Africa, there has been an increase in the rate of uptake in the COVID-19 Loan Guarantee Scheme since Phase II was introduced. According to the association R14.5bn (€737m) had been paid out under the loan guarantee scheme to South African businesses by the end of August, an increase of R1.15bn (€58m) from the figure at August 15.

“Since the beginning of August, banks have been granted more flexibility when assessing the ability of businesses to repay their loans as economic activity resumes. The date from which businesses are considered to have been in good standing – have a good record of paying their debt – was also moved back to December 31, 2019, which made more enterprises eligible for the COVID-19 Loan Guarantee Scheme,” said the association.

It also confirmed that by the end of August, participating banks had received 42 202 applications from clients for the guarantee scheme. Of all the applications, 25% were approved by banks and taken up by businesses, while 37% are still in the process of being assessed; 35% were rejected because they did not meet the eligibility criteria for the loan, as set out by treasury and the SARB, or because they did not meet banks’ risk criteria.

The main reasons so far for the rejections were that the businesses were not in ‘good standing’ or the requested loan value was too high and the repayments unaffordable for the business.

Commercial banks, along with the Reserve Bank and National Treasury, are continuing to review the reasons for the rejection of loan applications, with a view to making the scheme even more accessible, while balancing the risks to taxpayers.

Tourism sector still under strain

Absa Deputy Chief Executive of Retail and Business Bank, Bongiwe Gangeni, told Tourism Update that Absa assessed each customer’s request for support individually, based purely on their financial strength (most importantly their repayment or debt-servicing ability), their standing and track record with the bank.

She added that the loan guarantee scheme was just one of the relief instruments available to Absa clients, and Absa continued to seek various ways to support its customers and clients. 

“The tourism industry is still experiencing a lot of strain, which has had a significant impact on the financial position of many of these businesses. As a result, some businesses may have difficulty in obtaining more credit due to affordability considerations. While the reopening of borders will go a long way in assisting tourism businesses, it will likely take a while for the sector to recover to pre-COVID levels,” said Gangeni.