2 Things we learned from the R200 billion Guaranteed Loan Scheme (GLS)

Two hundred billion Rand was effectively made available to SMEs by the South African president over a year ago, but with less than 10% allocated, only a few thousand recipients, and just weeks left to apply, one has to ask, “Why so few takers?”

What is a GLS?

Outlined as the biggest portion of the country’s economic stimulation package, the scheme aimed to encourage banks to lend more money, on more favourable terms, to businesses whose operations had been affected by the pandemic. 

The BASA (Banking Association of South Africa) says that as of 27 March 2021, only R18 billion in loans had been approved and a further extension of the scheme will be applied for three months ending on the 11th of July to enable an orderly winding down of the scheme and allow those businesses who have applications already lodged to be assessed. 

As any South African will tell you, let alone the plethora of small to medium business owners, the last year has been tough on the pocket, so why were struggling businesses not willing to take advantage of this seemingly great opportunity? Well, we would draw it down to 2 simple reasons.

1. Trust

It would seem that most business owners who would actually qualify for loans were reluctant to take on more debt in an uncertain business environment, or they had made financial relief arrangements directly with their banks. An already weak economy and financial distress pre-dating COVID-19 along with the slow pace of economic reform, unreliable electricity supply and lack of inclusive growth ultimately equated to a lack of confidence and trust in a government-proposed credit scheme. 

2. Partnership

A common clarification of the capital needed in this scenario is one that requires faster turnaround, smaller ticket sizes, aspects of patient capital and the due diligence to expose whether the underlying business will remain solvent.

The approach to these aspects of financial support – relief capital – are very different from the aspects associated with the government’s scheme – feeling a lot more like growth capital. 

Relief capital takes communication and ingenuity to overcome the obstacles SMEs face – Coronavirus or not – and that comes from an appreciation of many factors. An appreciation that comes from partnership.  

Bonus 3rd Reason – A legacy of rejection

Small business owners are used to being declined for funding, so why would now be any different? Leaving it up to traditional banks to decide who qualifies means that larger, more stable businesses – that are easier to assess – are prioritised. This is evident from the average GLS loan being north of R1.5m. 

Small businesses, which typically need much smaller amounts, have historically been overlooked and continue to be underserved, so they can’t be blamed for assuming this time will be the same.  

Conclusion:

The lack of uptake of the Guaranteed Loan Scheme set out by the government in a time when everyone could do with a hand leads us to believe that it takes more than a guarantee of available funds for business owners to willingly enter into further debt in such an uncertain environment.

What matters to SME owners is speed and ease – the kind of speed that comes from a trusted fintech platform that knows as much about your business capabilities as you do, and an ease that is more than simple, but worry-free too. 

At Bridgement, we endeavour to make the running of a business, your business, possible. 

We’re here to help you make a success of your business by providing insight and understanding to a complex landscape and offering much-needed funding to make that success a possibility.  

Bridgement Business Funding

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