Treasurer Josh Frydenberg delivered some welcome news for business owners this morning when he announced that the Federal Government is expanding the current SME Recovery Loan Scheme to help struggling businesses stay afloat.
The SME Recovery Loan Scheme has been revamped to provide eligible small and medium-sized businesses with financial support, in the form of cheaper credit with lower fees, until 31 December 2021. According to the Australian Government Treasury, the scheme allows many otherwise viable SMEs “to access vital additional funding to get through the impact of Coronavirus, recover and invest for the future”.
The scheme was originally introduced to alleviate the impact of ongoing lockdowns and restrictions on small businesses, as well as to support those businesses affected by the terrible floods of March 2021.
Previously businesses could only access the current SME Recovery Loan Scheme (Phase 3) loans if they were on Jobkeeper from January to March 2021 or were affected by the recent floods. This condition meant the majority of small businesses that were on JobKeeper in 2020 but weren’t eligible in early 2021 couldn’t get these competitive loans.
Today that has changed.
What are the Conditions of the SME Recovery Loan Scheme?
Participating lenders (as approved by the scheme) will work with the Federal Government to offer the following loan conditions:
- 10-year loan term (principal and interest) with optional repayment holiday period
- $0 application fee and $0 monthly fee (typically from the bank)
- Up to 24 months repayment holiday if needed but this is assessed on a case-by-case basis (generally banks do 3-6 months if a business needs a loan holiday)
- The government will guarantee 80% of the loan amount
- Rates vary from 2.60% odd to 7.50% (max) depending on the lender and if commercial security is used or there is no security (normally personal guarantee/GSA only is deemed ‘unsecured’).
- Loans can be Secured or Unsecured
What Types of Loans Will be Considered as part of the SME Recovery Loan Scheme?
Participating lenders will follow the scheme guidelines but are likely to offer loans based on the following:
- For growth to businesses that currently bank with them
- For the purpose of working capital for ‘new to bank’ borrowers
- For the purpose of investment
- To refinance existing debt (including previous government loans)
How Can You Access the SME Recovery Loan Scheme For Your Business?
This is a fantastic and unprecedented loan offering, which is far more impactful than anything that has ever come before it. It represents a chance for strong businesses to grow and invest, and those who are weak to stay afloat and change up their business model during tough times.
Note that while the banks taking part in this scheme are supported by the government (for 80% of possible bad debts from defaults), they are still required to lend responsibly and in line with their policies. The banks will need to ensure that any applicants are able to afford these loans over a 10-year term, by looking at the historical and likely future business performance, and allowing for key stakeholder living costs and other outstanding commitments.
If you think this is something your business could benefit from, you can either apply directly at the bank where you do your day-to-day banking, or you could get in touch with our BlueRock Melbourne-based finance brokers to approach all the banks on your behalf and find the right arrangement for you.