Small and medium-sized finance providers will form part of SME funders with banks, of new business equity linked loan guarantee support scheme targeted at small businesses in distress owing to the Covid-19 pandemic. Minister of Finance Enoch Godongwana in his maiden Budget Speech yesterday (Wednesday 23 February 2022) said the equity support mechanism of this scheme would be facilitated through Development Finance institutions (DFIs) and to be introduced in April this year.
He said the equity-linked loan guarantee scheme is the second of two mechanisms that would be introduced sequentially as part of the Bounceback scheme to support small and medium-sized enterprises. This mechanism will be launched and operational next month. The minister said the business equity-linked loan guarantee scheme together with the small business loan guarantees of R15bn will bring the total support package through the bounce-back scheme to R20bn.
Godongwana said the government would partner with loan providers by underwriting the first 20% of losses for banks and other eligible small and medium loan providers. He said the eligibility criteria, including the requirement for collateral, have been loosened. Details of the terms of the equity-linked guarantee mechanism will be provided soon. In response to the budget, Black Business Council CEO Kganki Matabane said the BBC welcomed the budget, adding that the inclusion of non-banking SME financiers to be part of the bounce-back guarantee scheme was a move in the right direction.
“We will engage national treasury in the next two weeks so that we are part of the development of the criteria for access to this scheme. We need to ensure that black-owned, youth, women, and businesses owned by Persons with disabilities are at the centre of benefiting from this scheme. “We cannot sit in airconditioned rooms and think we can drive the criteria for the beneficiaries of these funds, he said.
The BBC was also pleased that taxes were not increased as this would provide relief to struggling South Africans. The reduction in the corporate income tax rate to 27% from 28% was also welcomed by businesses. Meanwhile, Small Business Institute CEO John Dludlu said SBI acknowledged Government’s determination to be inclusive, consultative and willing to listen to players in the SME ecosystem when formulating interventions that assist SMEs to contribute to economic growth and jobs.
“We welcome the three SME-specific announcements — job incentives and bounce-back measures — and look forward to engaging further on details. “We call on the government to now focus on the implementation of the plans and accelerate long-agreed structural reforms to strengthen green shoots we are witnessing as the covid-19 pandemic shows signs of fading away, he said.