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SME Blog & News

SME Government Guarantee Loan Scheme

The Treasurer has announced an extension to the SME Government Guaranteed loan scheme, Coronavirus SME Loan Guarantee Scheme as well as increasing the loans up to $5 million this will assist business owners to refinance their existing debts.

The SME Recovery Loan Scheme is specifically targeted at SMEs currently receiving JobKeeper. The scheme is only open to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021.

To date the loan scheme has proved challenging to access, due to many of the banks applying difficult terms and approval conditions, leaving many business owners ineligible for the loans  

In the latest scenario the government will accept a higher responsibility of the guarantee, moving from a 50/50 backing with banks to an 80/20 split, in other words the Government will guarantee 80% of the loan, the banks will still access the credit worthiness of the clients for and on behalf of the Government  

"This will encourage more banks to support small businesses and demonstrates the Government’s commitment to those businesses who are prepared to back themselves," the Treasurer Josh Frydenberg said.

The expanded scheme will also increase the size of eligible loans (which can be either secured or unsecured, residential property cannot be used as security), increasing from $1 million under the current scheme to $5 million.

Loan terms will increase from five to 10 years and lenders will be allowed to offer borrowers a repayment holiday of up to 24 months.

The interest rate on loans will be determined by lenders, but will be capped at around 7.5 per cent, with "some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time".

Loans will be available from 1 April 2021 and must be approved prior to 31 December 2021.

The maximum eligible turnover for businesses will also increase from $50 million to $250 million.

Loans can be used for a broad range of business purposes, including to support investment (for example, the acquisition of another business) and for the purchase of commercial property.

Mr Frydenberg added that the scheme will also be able to be used by eligible businesses to refinance their existing loans, including those from the SME Guarantee Scheme.

"This will allow SMEs to access the more concessional interest rates available under the program and to better manage their cash-flows through an extended loan term and lower combined repayments," he said.

However, there will be some restrictions on refinancing loans, such as not allowing loans that are more than 30 days in arrears to be refinanced, nor allowing borrowers who have entered external administration (or are insolvent) to refinance debts using the SME Recovery Loan Scheme.

Lenders can vary or restructure loans as long as they continue to meet eligibility criteria (including the maximum loan term) and do not increase the loan limit after approval.

According to the Treasurer, more than 35,000 loans worth approximately $3 billion have already been provided under the SME Guarantee Scheme, this number is a long way short of where the Government had anticipated the assistance to be, with the new recovery phase targeted and tailored to support those businesses that have been relying on JobKeeper during the March quarter.

More than 350,000 current JobKeeper recipients are expected to be eligible under the expanded scheme. 

“This SME Recovery Scheme is part of the next step in our plan to help small businesses stand on their own two feet as the economy recovers from COVID-19," Mr Frydenberg said.

The new SME loan scheme is specifically directed to support business owners and provide them with long term financial security to assist them through the current economic conditions, the Government subsidy will also enable businesses to access additional working capital to allow them to continue to see their way to the other side of the crisis and keep their staff employed

Phase 2 of the existing SME Guarantee Scheme will remain open to eligible borrowers until 30 June 2021.

SMEs who already have Phase 1 or Phase 2 SME Guarantee Scheme loans will be able to apply for loans under the SME Recovery Loan Scheme, too.

 
 

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