National Treasury this week launched the Energy Bounce Back Loan Guarantee Scheme (EBB), which will provide 20% government-backed loans to households and small businesses that want to instal solar-energy systems.
The aim of the EBB is to incentivise the generation of an additional 1 000 megawatts of electricity through rooftop photovoltaic solar over the next 12 months, while helping small businesses and households to mitigate the effects of loadshedding, Treasury says.
The EBB is complementary to the renewable energy tax incentives announced in the 2023 Budget. Businesses and households can apply for both the tax breaks and the EBB.
To facilitate the EBB, National Treasury has provided a guarantee to the South African Reserve Bank (Sarb). This guarantee will be recorded as a contingent liability on the government’s account. The Sarb will lend money to participating banks at the repo rate plus a 0.5% once‐off charge of the amount disbursed.
Participating banks and other lenders will lend this money and their own funds for the unguaranteed portion (80%) of the loan amount to small and medium enterprises (SMEs) and households at an interest rate of no more than the repo rate plus 6%.
What does the EBB fund?
The EBB will work through three mechanisms.
1. Loan guarantee for rooftop solar for SMEs and households
This mechanism will facilitate loans to households and small and medium enterprises (SMEs) for investments related to rooftop solar-generated energy. These investments include solar panels, batteries, inverters, and installation-related costs.
This mechanism will also allow businesses to take out loans to purchase “resilience assets”, such as small portable batteries.
2. Loan guarantee for rooftop solar for energy service companies
This mechanism will facilitate loans to energy service companies (ESCOs) that provide leasing, instalment sales, and power purchase contracts to SMEs and households.
It will allow businesses and households to switch to ESCOs for more reliable and cleaner energy without having to finance the full upfront costs of rooftop solar equipment.
Support from the EBB, which will enable ESCOs to scale up and expand leasing services to households and small businesses, will require ESCOs to assess the individual needs of households or businesses, implement a suitable solution, and conclude a leasing, instalment sale, and power purchase contract between the ESCO and the applicant.
3. Working capital loans for businesses in the rooftop solar supply chain
This mechanism will facilitate working capital loans for businesses that supply rooftop solar to meet increased demand. It will help to increase the supply of rooftop solar solutions, allowing businesses to source rooftop solar equipment with minimum delays.
In addition to the above three mechanisms, National Treasury and the Industrial Development Corporation (IDC) are working to expand funding for new ESCOs through additional financing instruments. The IDC will provide details of these instruments in due course.
What are the qualification criteria?
The granting of a loan will depend on the business or household meeting the eligibility criteria of the EBB and the participating bank’s credit criteria.
For the leasing mechanism (mechanism 2), prospective customers must comply with the requirements set out by the participating banks and the ESCOs.
For households, the maximum loan for purchasing rooftop solar is R300 000 per household.
The maximum amount a business can borrow is R10 million.
Businesses must be registered with the Companies and Intellectual Property Commission or be registered for value-added tax with the South African Revenue Service.
Eligible businesses must have a maximum turnover of R300m.
SMEs can also borrow a maximum of R30 000 through the scheme for resilience measures. Resilience measures include power storage assets without generating capacity, such as batteries and inverters. This is to enable micro and informal businesses to access these assets, as well as businesses operating on premises where landlords are unable or unwilling to instal solar panels.
Businesses in the rooftop solar supply chain, installers, and those importing batteries, investors, and panels can borrow up to R100m for working capital.
Development finance institutions (DFIs) and non‐bank lenders, which include wholesale retailers offering credit products servicing informal traders, can access the scheme through a commercial bank up to R300m per entity.
How is the EBB accessed?
EBB loans can be accessed through banks that have opted to offer the EBB to their customers, DFIs, and non‐bank SME finance providers.
ESCOs will also access funding through participating banks.
Which banks are participating?
Currently, Absa, First National Bank, and Standard Bank have indicated they will participate.
All commercial banks can access the EBB, although the Sarb reserves the right to limit the amount that can be accessed by an individual bank.
If your bank is not participating in the EBB, you may approach any other participating bank, DFI, or non‐bank SME finance provider to access any mechanism under the EBB.
What is the duration of the scheme?
The EBB will be available until Friday, 30 August 2024 with the goal of reaching 1 000 MW of new generating capacity. National Treasury will assess the effectiveness of the EBB thereafter.
The EBB will be dispersed through participating banks on a first come, first served basis until the first of either the final date (30 August 2024) or the scheme reaching 1 000 MW.
Can a business with a loan from a previous loan guarantee scheme apply for an EBB loan?
If a loan was declined under a previous guarantee scheme, the business may apply for an EBB loan subject to their bank’s credit assessment practices. For example, if the loan was declined because the business was not in good standing with its bank on 29 February 2020, or it was unable to prove its turnover.
In addition, if a business received a loan under a previous loan guarantee scheme (the Covid Loan Guarantee Scheme of 2021 or the Bounce Back Guarantee Scheme of 2022), the business will still qualify for a loan under the EBB, subject to the criteria of the participating bank, DFI, or non‐bank finance provider.
Can businesses and households that claimed for the solar tax incentive apply for an EBB loan?
The EBB is complementary to the tax incentives announced by the Minister of Finance in the 2023 Budget, namely the tax rebate for installing solar panels at a residence and the expanded renewable energy incentive for businesses.
Read: A deeper look at the solar panel tax incentive for individuals
Read: How the expanded section 12B allowance may benefit businesses
Both businesses and households (individuals) that have claimed under the tax incentives may apply for loans under the EBB.
Businesses and households will need to comply with the reporting requirements as set out by the South African Revenue Service to qualify for the tax incentives.
In addition, borrowing businesses, ESCOs and other businesses in the rooftop solar supply chain are encouraged to utilise the employment tax incentive and the carbon tax allowances to reduce the cost of taking on additional employees and benefit from the reduced carbon intensity of their activities.
What happens if a business closes?
If a business that has taken a loan goes into liquidation, the loan will be fully pursued for all possible recoveries by banks (or other lenders). Banks (as lender) will recover the government portion of the loan on its behalf only when the bank has declared that loan as a defaulting loan. In other words, the bank classifies the loan as “credit impaired” as stage 3, as defined in International Financial Reporting Standards 9, and the bank has applied its standard recovery process applicable at the time for at least six months. The banks do, however, have an obligation to continue with their attempts to recover.
What conditions must banks, DFIs, and non-bank lenders meet?
Banks, non‐bank SME finance lenders, and DFIs are required to comply with applicable lending legislation and regulations. They will use their existing credit assessment processes and infrastructure to process loan applications.
Banks and other finance providers have discretion on whether they wish to extend a loan to an applicant. Likewise, ESCOs have the discretion on whether they want to extend leasing arrangements to SMEs and households.
Banks will cede any loans under the scheme to the Sarb as security or collateral for the funds made available to the banks. Banks will report regularly to the Sarb on the performance of the loan portfolios. Non‐bank lenders and DFIs will follow the same process, with their participating bank acting as facilitator.
Who manages the scheme?
National Treasury, through the Sarb, and the participating banks will enter a legal agreement on the relevant financial and operational requirements.
Non‐bank lenders may only participate in the EBB through participating banks, because only licensed banks have access to the Sarb’s repo facilities.
The Sarb is the administrator of the EBB on National Treasury’s behalf. The Sarb will provide the finances for the loans to banks and will keep a record of the amounts owing by each bank, as well as default rates.
The Sarb will provide Treasury with an annual report setting out how much each bank would have used from the EBB and the performance (default rate) of each bank’s loan portfolio.
Who carries the losses?
Participating banks, non‐bank SME finance providers, DFIs, and National Treasury share the risks of the EBB, with Treasury taking the first 20% loss and lenders assuming the remaining risk.
The Sarb assumes no financial risk because its loans to banks are guaranteed by Treasury.
Who can I contact for more information?
Contact your primary bank to determine whether it is participating in the EBB. If it is not, approach any other bank to determine whether it is participating. You can also enquire through a DFI or non‐bank finance provider.
