The current COVID-19 (Coronavirus) pandemic has caught almost everyone off guard, individuals, governments and businesses alike. While Australia has so far made promising progress dealing with the health implications of the crisis, forward visibility of the economic consequences remains murky. On the 22nd of March, the Australian Government announced their second phase of stimulus measures, now cumulatively worth almost $200 billion. With so many moving parts and different entitlements, it can be difficult to identify and understand which measures are relevant or beneficial to you, your small business and your employees.
The situation is changing rapidly and it’s vital to stay on top of the latest developments – especially as a small business owner. With new terms like ‘social distancing’ and ‘flattening the curve’ dominating our pandemic lexicon, here’s another phrase that small and medium businesses need to understand: the Government SME Loan Guarantee Scheme.
What is it and how do you take advantage of it?
What Is The Government SME Loan Guarantee Scheme?
The Government is guaranteeing eligible loans in order to increase the options for SME’s looking to gain access to much-needed working capital. The Government will guarantee 50 per cent of all new unsecured loans issued by eligible lenders to SME’s. This guarantee will cover up to $20 billion, supporting $40 billion in new funding to SME’s. Sole traders and not-for-profits will also be eligible to apply through their lender and receive the support of the Scheme.
“Loans issued under the Scheme will be unsecured and feature an initial six-month repayment holiday”
By guaranteeing these loans, the Government is saying that they will assume half the debt obligation of the SME, should they go under or otherwise become incapable of repaying their liability. As such, the Government is encouraging lenders to provide credit facilities that allow drawdowns only when needed by the SME, such as a business line of credit. Importantly, loans issued under the Scheme will be unsecured and feature an initial six-month repayment holiday, maximising ease of access and supporting cash flows over the next few, critical months.
Why is the Government Doing This?
Social distancing and lockdown policies placed on industries such as travel and hospitality have led to unprecedented restrictions on many businesses’ operations. SME’s are particularly vulnerable to the impacts as they likely have fewer assets on their books and therefore reduced access to external funding or working capital.
The Coronavirus SME Loan Guarantee Scheme aims to provide SME’s with timely access to working capital to help them survive while the Coronavirus social restrictions are in place. By guaranteeing half the amount of the loan, lenders will be able to offer lower interest rates as well as adopt less stringent lending criteria. The Scheme should therefore, increase a lenders appetite to provide credit facilities to businesses that otherwise would have found it difficult to source emergency funding, given their current trading situation.
However, as the banks have already reminded us, this measure still can’t save everyone. All funding supported by the Scheme is still aloan and needs to be repaid. It’s not a handout. The government is taking risk off the table for lenders to lend funds to businesses that require the facility temporarily to continue trading and keep staff employed.
The Details
In order to successfully access the Scheme, your business will need to be all of the following:
- An SME or sole trader with less than $50 million turnover per year.
- A new loan customer – refinancing an existing loan will not be eligible.
- Applying for a loan of no more than three years or $250,000.
- Using the funds for working capital
- Approved by an eligible lender before the 30th of September 2020
How Can My Business Benefit?
Consider your business’ financial position and outlook. If you’re currently struggling to meet your working capital requirements, or think you will feel the pressure over the next six months, a loan backed by this Scheme may be right for you.
“Do your research and reach out to an experienced finance business broker to help you find the best deal for your circumstances”
Recall that you will need to pay off the loan after the six month repayment holiday, so assess your ability to meet future instalments. If your business was already in the market for an unsecured SME loan, now’s the time to take advantage of easier access, lower interest rates and more lenient repayment schedules.
Do your research and reach out to an experienced finance business broker to help you find the best deal for your circumstances. It’s not just the banks that can offer loans under the Scheme non-bank lenders have been approved. Furthermore, the Government has announced $250 million in additional funding for smaller lenders, noting their essential role in maintaining effective competition throughout the SME lending space.
Capital Plus Finance supports small businesses. We have your back. As an experienced business finance broker, our team will do everything we can to help you through tough times. If you need assistance understanding how your business can take advantage of the Government SME Loan Guarantee Scheme please give me a call.