Small businesses are suffering as South Africa crawls its way through a lockdown period.
When the lockdown was announced, President Cyril Ramaphosa, stated that a Solidarity Fund would be set up to assist businesses in this trying time. In tandem with this was a pledge of R1 billion each from the Rupert and Oppenheimer families.
The former has been our focus since last week when we learned that what was presented as donations by the president were actually loans.
The confusion in that regard aside, our focus was trained on the company which would disburse the loans and act as the manager of the R1 billion pledge.
That company is Business Partners and this morning we spoke with chief operating officer at Business Partners, Mark Paper.
Our biggest question was why Business Partners had selected the prime rate in terms of interest for the loans as at face value, it looks like things could get pricey.
Where we were getting tripped up was the fact that for the first 12 months of the loan no interest is charged or accumulated at all.
We should also add that all businesses which are approved for a loan will receive a grant of R25 000 which will not have to be repaid.
Repayments will start from month 13 and if we assume the prime rate at that month is still 8.75 percent, on a loan of R250 000, the effective interest rate is just 2.23 percent over the 48-month repayment period.
Whereas the loan term is for 60 months, the repayment period is only 48 months.
For those keeping score that’s 6.52 percent below the prime rate (8.75 percent) and 3.02 percent below the repo rate (5.25 percent).
That is an incredibly good interest rate anyway you slice it.
Of course, businesses need to prove they are good corporate citizens in order to qualify for a loan from the Sukuma Relief Fun.
“We are looking at business before the pandemic spread and seeing that they were operational and solvent before this all started,” explains Paper.
Business Partners will be checking that a business has a tax clearance certificate, that it pays its salaries and of course, fulfils its tax obligations.
The business will also have to prove it was solvent before the lockdown began.
Here’s a brief rundown of how the process plays out from application to payout.
There are as many as 70 investment professionals assessing each application and verifying that a business’ bona fides are in order. As you may rightly assume, this process takes time but Paper is confident that the seven day turn-around from application to payout can be met.
The investment professionals should take two to three hours to review each transaction. This process is done manually.
The application is then approved or denied and then passed along to the legal team which will draft the agreement. The agreement will then be checked by the applicant and if all is in order pay outs should take approximately 24 hours.
Business Partners will also determine how much money a business needs based on its history.
But businesses should not expect a lump sum payment and there is a good reason for that.
In order to insure that a business is using the funds for salaries and to meet debt obligations, Business Partners will require businesses submit proof they have paid salaries and met PAYE obligations each month over the three months that the loan will pay out.
This is being done so as to deter businesses from using the funding elsewhere during this trying time.
What happens if your business closes down?
Many business owners may be worried about what the future holds and as such, hesitant to take up debt.
So what if by next year, on month 13, your business has to close?
Because the loans are being offered to close corporations and trusts, these owners are not personally liable for the business’s debt.
However, businesses which are operational will have to repay their obligations as set out in the loan agreement with Business Partners.
It’s at this point we’d like to stress that Business Partners is not making money from this endeavour.
“Business Partners is not making a cent from this initiative and any costs incurred will be paid for from our pocket. The money will also not go back to the Rupert family,” explained Paper.
The idea is that those who can pay back their loan will allow the Sukuma Relief Programme to continue assisting businesses in need into the future.
Finally, with the Sukuma Relief Programme having reached capacity earlier this week, a call has been put out to big business and corporations to assist with donations to the fund.
Paper says that Business Partners is in the process of ironing out the details of this and will furnish details as soon as possible.
Having chatted with Paper we’re a little more confident in the Sukuma Relief Programme. Of course we will continue to monitor it but we’re confident that businesses taking up this relief will get exactly that.
Should the programme reopen for applications we will be sure to update our reader.[Image – CC 0 Pixabay]