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Update: Coronavirus SME Loan Guarantee Scheme 2.0

Forming part of the Government’s Coronavirus stimulus package measures, the SME Loan Guarantee scheme was introduced to provide working capital support to Small and Medium Enterprises (SMEs) with an annual turnover of less than $50 million. Since its initial phase, the Government has announced changes to the scheme to broaden its reach and provide more options for the use of the loans – shifting focus from keeping businesses afloat to actively encouraging investment to stimulate economic recovery. The second phase of the SME loan Guarantee scheme came into effect on 1 October, so let’s recap the changes and look at how businesses can take advantage of the loans available.

Recap – SME Loan Guarantee Scheme Phase 1

The initial phase of the SME Loan Guarantee Scheme was brought in to allow businesses to take out loans to help reduce the impact of Coronavirus. Here’s a brief overview of the important details from Phase 1:

• Loans up to up to the value of $250,000 would be available
• The Government guarantees 50% of new SME unsecured loans (effectively representing a guarantee of up to $125,000)
• Lenders encouraged to provide loan facilities to small businesses that are available to have funds withdrawn if the business requires it, with interest only to impact the funds drawn down.
• 3 Year terms, with initial 6-month repayment holidays
• No fees payable on loan establishment
• New loans only (not refinanced loans)

Recap – SME Loan Guarantee Scheme Phase 2

In July 2020, the Government announced an extension and expansion of the SME Loan Guarantee Scheme, which broadens the scope of business needs for which the loans can be used, placing more of an emphasis on owners investing in their businesses to stimulate economic recovery (as opposed to using the loans to simply keep their doors open). Phase 2 came into effect on 1 October, and an overview of the relevant changes is as follows:

• Loans guaranteed under Phase 2 may be used for a wider scope of business needs besides just working capital. These include borrowing for Capital expenditure, Business acquisition and Commercial property purchase (owner occupied only)
• Maximum loan size has been increased from $250,000 to $1 million per borrower;
• Maximum loan term has been increased from three years to five. Six-month repayment holiday is at the discretion of the lender;
• The loan can be secured or unsecured (excluding residential or commercial property).

Loans under Phase 2 of the scheme are still subject to the credit assessment processes of lenders, and they will still be responsible for managing the loans and making decisions regarding credit extensions. The ongoing uncertainty of economic conditions will remain a factor as lenders decide whether or not to provide loan facilities.

Making the Most of Phase 2

Now that we are in phase 2 of the SME Loan Guarantee Scheme, businesses have an opportunity to not only survive in the pandemic, but thrive. Borrowers are able to access up to $1 million to invest in their business, with 50% guaranteed by the government, to do things like purchase plant and equipment, acquire commercial property (owner-occupied), or improve their access to working capital. Now that lenders have had some time to prepare for Phase 2, there are some very generous interest rates on offer, as well as the provision of a six-month repayment holiday from some lenders.

Practically speaking, this provides an excellent opportunity for business owners to invest in their business and add value to it for the long-term, without incurring the higher interest rates offered outside of the loan scheme. For example, there are lenders offering rate discounts of over 1.5% on some facilities, taking variable rates down from 4.5% (Unsecured) to 2.95% (Secured by Commercial premises). As is often the case with these sorts of deals, the sooner you get on board with it, the sooner you’ll be able to start investing in, and improving, your business.

The Finance team at McKinley Plowman can take the hassle out of finding a loan under the SME Loan Guarantee Scheme, and conduct a Competitive Tendering Process to ensure you get the best deal for your borrowing needs. Give us a call today on 08 9301 2200, or for more information visit www.mckinleyplowman.com.au/services/finance.

Further Reading: Treasury Information – SME Guarantee Scheme

written by:

Paul Moran

Paul has over 35 years of experience in finding financial solutions for homebuyers, investors and business owners.
A licensed broker and member of the Mortgage & Finance Association of Australia (MFAA), Paul’s extensive experience includes 20 years with a major bank, seven of which were as commercial banking manager.
Paul delivers a holistic financial solutions to achieve the best possible outcome for a client’s personal or commercial lending needs. Paul also provides a comprehensive financial consultancy to business owners on commercial, equipment and invoice finance.