Kickstarting the economy took centre stage in yesterday’s Budget, and Minister of Finance Enoch Godonwana stressed the importance of small and medium enterprises (SMEs) in this effort.
However, there is some scepticism around a new scheme that has been set up to help those SMEs in distress as a result of the Covid-19 pandemic.
Godonwana has announced a new business bounce-back scheme which will use two mechanisms, to be introduced sequentially.
“Firstly, small business loan guarantees of R15-billion will be facilitated through participating banks and development finance institutions. This allows access for qualifying non-bank small and medium loan providers.
“Government will partner with loan providers by underwriting the first 20% of losses for banks and other eligible small and medium loan providers.
“The eligibility criteria, including the requirement for collateral, has been loosened. This mechanism will be launched and operational next month,” the minister says.
“Secondly, by April this year, we intend to introduce a business equity-linked loan guarantee support mechanism.
“We intend to bring the total support package through the bounce-back scheme to R20-billion.”
The equity support mechanism of this scheme will be facilitated through DFIs. It will also be available to qualifying non-bank small and medium finance providers.
Garth Rossiter, the chief risk officer at SME service provider Lulalend is cautiously optimistic about the scheme, but warns that similar initiatives failed.
“We have been championing the SME space for a number of years at Lulalend and have been vocal about the need for government to provide an enabling environment for these businesses to thrive.
“This budget touches on a number of the aspects we wanted including funding for infrastructure and Eskom as well as a focus on corruption and importantly not raising personal or corporate taxes.”
He questions whether government is serious about the SME bounce-back scheme. “Or is it once again paying lip-service to helping small business. The previous Loan Guarantee Scheme was a dismal failure, specifically because the distribution of funds was left to banks which are notoriously risk-averse and lack the understanding and ability to fund SMEs quickly.
“As the leading online funder of SMEs in South Africa, Lulalend has heard nothing from government about this new scheme which suggests they have not actually spoken to non-bank lenders.”