The government guarantee scheme for small businesses is to be extended to permit secured lending and increase the maximum loan size and terms.
In March of this year, the federal government announced that it would guarantee 50 per cent of new unsecured loans to SMEs if they took out a loan under the 44 approved lenders operating under the Coronavirus SME Guarantee Scheme.
To date, the scheme has already seen more than 15,600 businesses accept loans worth $1.5 billion. The initial phase of the scheme remains available for new loans issued by eligible lenders until 30 September 2020.
The Treasury has now revealed that it is expanding the scheme to “help businesses move out of hibernation, successfully adapt to the new COVID-safe economy and invest for the future".
From 1 October 2020 until 30 June 2021, the maximum loan size will quadruple from $250,000 per borrower to $1 million per borrower.
The maximum loan term will also increase from its current three-year limit, to five years.
SMEs will be able to access the scheme to use loans for more than just working capital (so that a wider range of investment can be funded) – and secured lending will be permitted (excluding commercial or residential property).
It will be up to the discretion of participating lenders should they wish to offer a repayment holiday period.
‘Supporting Australian small businesses when they need it most’
In a joint statement, Treasurer Josh Frydenberg and the Minister for Employment, Skills, Small and Family Business, Michaelia Cash, commented: “The Morrison [government] will help businesses as they move into the recovery phase of the coronavirus crisis by extending the Coronavirus SME Guarantee Scheme which supports small and [medium-sized] businesses (SMEs) to get access to the funding they need to adapt and innovate during the coronavirus crisis…”
“The extended terms of the scheme will enable lenders to continue supporting Australian small businesses when they need it most.
“The expanded scheme will shift from providing access to working capital to helping businesses stay afloat during the crisis to now also enabling them to access more affordable and [longer-term] credit so that they can invest for their future.
“The Morrison [government] will continue to support small businesses as they seek to rebuild, adapt and create jobs on the other side of the coronavirus crisis.”
Speaking on the Today Show, Mr Frydenberg added: “Businesses will make their own assessment about their economic circumstances and will take out loans to support their growth opportunities or to maintain their working capital to stay operational and viable. But today’s announcement is great news for the 3.5 million small businesses. We’re giving them access to more money at lower rates and for longer periods by extending the loan tenure from three to five years, by extending and expanding it from loans up to $250,000 to now loans up to $1 million, and we’ll be partnering with the banks.”
The expansion of the scheme has been welcomed by industry and members of the small business community.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell said: “We support this next phase of the Coronavirus SME Loan Guarantee Scheme, which aims to help businesses emerge from hibernation and adapt to COVID-safe protocols so they can continue to operate and ultimately grow.”
“Crucially, the extended terms of the scheme [provide] small businesses more affordable credit over a longer period so they can invest in their future.
“This time round, lenders have [the] discretion to offer a loan repayment holiday and interest accrued over that period will be spread over the course of the loan.”
Ms Carnell added that SMEs should also look to access relevant advice before entering into a loan.
[Related: ‘More help’ issued for SMEs and sole traders]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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