As COVID-19 (Coronavirus) dominates our social sphere and daily lives, almost no one is spared from the daily onslaught of updates, news and negative headlines. In a world where information and opinions are rampant, it can be surprisingly challenging to find the answers that matter most to you and your business. While the Australian Government has presented a detailed economic response plan, many of the announced measures continue to raise more questions than answers as they start their implementation process.
As a crucial part of the Government’s stimulus package for businesses, the Coronavirus SME Loan Guarantee Scheme aims to provide small and medium businesses with timely access to working capital. By guaranteeing 50 per cent of all new unsecured loans issued by eligible lenders to SMEs up to $40 billion, the Government is supporting lenders’ appetite to continue funding businesses who are suffering temporarily due to Coronavirus restrictions. While these guaranteed loans are indeed helpful for SMEs in need, it’s important to remember that they are not a free pass or a handout.
I recently held a Business Loan Webinar with Anne Kollegger, Director of Ark Financial, to answer the most common SME Loan Guarantee Scheme questions we’ve been receiving from SME’s just like you. Here are our latest insights and updates from the ground.
How are the Banks Rolling out the SME Loan Guarantee?
Firstly, it’s essential to understand the context of the banking industry right now. They’ve spent the last year dealing with the fallout of the Royal Banking Commission, only to be hit by a rise in financial hardship requests from the horrific bushfire season and now Coronavirus. They’re being inundated with over 1,000 requests a day – typically, that volume is spread out over an entire year.
Furthermore, as a result of global lockdowns and isolation orders in support staff hotspots such as India and the Philippines, the banks are scrambling to bring their support back onshore, a significant logistical headwind pushing out response times. The SME Loan Guarantee has further provoked an influx of demand, with over 11,000 applications already sitting in the queue for just one of our biggest banks. If you’re thinking about applying, apply through your existing bank, as they will prioritise their current customers, and expect elongated approval timelines.
How Does my Business Qualify?
Yes, that’s right, you still need to qualify as you would for any loan. While enormously helpful, this scheme is not the magic bullet many may have hoped for. While each lender is different, the three main criteria you’ll need to consider are:
● Your SME must have an annual turnover under $50 million to be eligible.
● You must pass your lender’s responsible lending assessment and criteria.
● You’ll need to demonstrate through your financials that before Coronavirus, your business would have been able to meet the repayments demanded by the loan.
I’ve Heard the Loan is Unsecured – What Does That Mean?
An unsecured loan is a loan made without protection from a guarantor or a collateral claim against another asset the borrower owns. Essentially, this means that borrowers will not be required to provide an asset as security for the loan. While your business’ property or equipment may be off the hook, keep in mind that loans issued under the SME Loan Guarantee Scheme are still backed by your personal guarantee. If you default on the loan, the lender can seek to recover funds from you personally, so consider the consequences and make sure a loan is right for your business and individual circumstances.
SME Loan Example
It’s important to realise that the six-month repayment honeymoon is a deferral, not a reduction in the amount due or interest accrued. Interest incurred over the six months will be added to your loan balance and will be payable after six months. Practically, this means that your repayments will be higher than they otherwise would be under a standard loan.
Information You’ll Need for your Application.
While each lender will have their own information requirements, be prepared to provide the following:
● Two years of externally prepared financials
● Personal tax returns of any directors
● ATO tax portals
● Your last four BAS statements
● A cash flow forecast
● Bank statements for at least the last six months
Also, you’ll need to declare that the loan will be used for working capital and what impact Coronavirus has had on your business, as well as your strategies to manage your business over the next six months.
Which Banks are Offering the Loan?
All the major banks are offering loans under the scheme, with the list of participating lenders now over 30. It’s best to go to your existing bank first, as they will prioritise current customers. Expect long turnaround times due to the sheer volume of applications and disruptions to both offshore and onshore support staff. Your debt levels and requested funding will impact what information your bank will require from you. Have everything ready to go where possible to minimise the time to approval.
Non-bank lenders such as Prospa, Ondeck, Moula, GetCapital and Liberty are set to announce further details around their participation in the scheme very shortly. These lenders have indicated that they’ll be aiming for a 5-business day approval time, with funds in the approved applicant’s account ten days later. Interest rates with some of the non-bank lenders will be higher, but with a turnaround time much faster than the banks, non-bank lenders will be an excellent option for SMEs looking to take advantage of the Government Loan Guarantee Scheme.
Watch the full video here with myself and Anne Kollegger, Director of Ark Financial:
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.