The second phase of the government’s Coronavirus SME Guarantee Scheme has launched, welcoming in new lenders and new product structures.
On 1 October, the new phase of the government’s Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme opened, quadrupling the maximum loan size from $250,000 per borrower to $1 million per borrower, allowing secured products and increasing from its current three-year limit to five years.
According to Treasury figures, the scheme had supported just 15,600 business loans worth $1.5 billion up to July 2020 – while the entire package was up to $40 billion.
How phase 2 is different
It was announced in late July that the government would be extending the scheme in phase 2 to permit secured lending and increase the maximum loan size and terms, in a bid to provide greater utility.
Under the new phase – available for loans made by participating lenders until 30 June 2021 – SMEs will now 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.
The expanded scheme aims to shift the priority away from providing access to working capital to helping businesses stay afloat during the crisis to helping them access more affordable and longer-term credit so that they can prepare and invest for the future.
New lenders joining the panel
Given the change in the scheme product requirements, more lenders are also expected to join the participating list.
While the government has not yet released the full list of participating lenders (expressions of interest don’t close until Friday, 16 October 2020), Treasury has said that it has made five offers to eligible lenders and is awaiting the finalisation of legal documents.
One new lender to confirm it has applied for the second phase is Suisse-backed SME lending fintech Tradeplus24 Australia, who noted that “though the [first phase of the] SME Guarantee Scheme was rolled out quickly, which was really positive, its original design didn’t help to materially address this funding gap, or prevent it from widening further”.
Adam Lane, managing director of Tradeplus24, commented: “Before COVID hit, Australian businesses were already faced with a $90-billion credit funding gap, which was significantly stifling their ability to grow…
“In Australia, many banks and traditional lenders struggle to economically structure finance smaller than $1 million for SMEs without requiring property as security, while non-traditional alternative lenders mostly tap out at anything above $250,000.
“The funding gap in the middle is a real challenge for SMEs, and by limiting the SME guarantee to loans below $250,000 [in the first phase], it didn’t cater for this crucial segment of the market,” he said.
“By also limiting it to unsecured loans, it was only providing lenders protection in their riskiest loan category, which most shy away from during times of uncertainty like this – irrespective of the guarantee.”
Mr Lane also lamented that the fact the six-month repayment holiday was mandated “put some lenders into an impossible situation”.
“Smaller lenders have to maintain adequate cash flow to survive and grow like any business, so this made the entire scheme unfeasible, and may help to explain why there wasn’t a great take-up of the scheme,” he explained.
“For all of these reasons, we – like many others – did not register for the scheme when it was first introduced. But now with the new changes to the scheme, we are really excited to get involved the second time around.”
“[W]e really do applaud the government for both trialling the scheme in the first place, and then for having the wisdom to revise its terms,” concluded Mr Lane.
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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