Following a low uptake in the COVID-19 Loan Guarantee Scheme, which was set up to take pressure off small businesses negatively affected by lockdown measures, a number of amendments were recently introduced to make it more accessible.

However, a month after the new measures were implemented, industry members say the scheme still remains largely inaccessible to the travel and tourism sector.

Changes implemented in Phase II of the Scheme include:

• Allowing clients to access the loan over a longer period. The draw-down period has been extended from three months to a maximum of six months.
• The interest and capital repayment holiday has been extended from three months to a maximum of six months after the final draw-down.
• The test for good standing has been made easier. This has been moved back from February 29 to December 31, 2019 to accommodate firms that were already experiencing cash-flow problems in February.
• The turnover cap has been replaced with a maximum loan amount of R100 million. Banks may also provide syndicated loans for loans larger than R50 million.
• Sole proprietorships are now also included. For sole proprietorships and small companies, salary-like payments to the owners (drawings) are included in the use of proceeds. Security, suretyships or guarantees are now explicitly required.
• Bank credit assessments and loan approvals will be more discretionary and less restrictive, in line with the objectives of the scheme. Banks may use their discretion on financial information required; for example, bank or financial statements where audited statements are not available. Suretyships or guarantees may also be required. The provisions of the National Credit Act and Financial Intelligence Centre Act remain applicable.
• Business restart loans will now be available to assist businesses that are able to begin operating as the economy opens up.

COVID-19 loans are granted at prime rates with government and commercial banks sharing the risk of non-repayment of these loans. The initial R100 billion guarantee that was provided to participating banks through the South African Reserve Bank has now also been extended to R200 billion.

Industry weighs in

CEO of the Tourism Business Council South Africa, Tshifhiwa Tshivhengwa, told Tourism Update that, despite the changes implemented for Phase II of the Scheme, travel and tourism businesses were still struggling to qualify for these loans due to the risk metrics that banks were applying to the industry.

“Even though these loans are protected by government guarantee, there is a reluctance from the banks to extend these loans to tourism businesses due to the lack of industry earning potential at present.

“We are engaging with the banks and the Department of Tourism to try and resolve these issues but the only way to fully remove the perception of risk in the sector is to safely reopen our borders and allow the industry to earn meaningful income again,” said Tshivhengwa, who added that the reopening of interprovincial travel this month had gone some way to improve this perception.

During July, Tourism Update reported that FNB had declined Bikes ‘n’ Wines’ application for a COVID-19 SME Loan. In an email response to Bikes ‘n’ Wines’ director, Quintin Smith, the bank said tourism had been classed as a high-risk sector and that the bank would not be able to assist with any finance or COVID-19 loan facilities due to lack of turnover in this specific sector.

This month Smith said he had only been successful with his applications for personal financing.

“The reality is that there is no meaningful support for small businesses at this time. The messages about relief packages are just a means for the government to pay lip service to the media and to try and placate the public from the reality of the situation,” he said.

Owner of Travel VIP, Paula Varges Martini – whose Phase I COVID-19 loan scheme was also declined by her bank due to “lack of industry affordability” – told Tourism Update that she had completed her application for Phase II and had fingers crossed that her second application would be successful.

“The Phase II amendments are far more practical and in line with the reality of the situation in the travel and tourism industries. For Phase II, loan repayments are only required from month 13 (rather than month seven) and the application permitted me to apply for a loan for the shortfall in my expenses over the next 12 months (rather than just six months). If the application is successful this should give my business the lifeline it needs to survive until borders reopen and travel demand picks up again,” she said.