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Government SME Loan Guarantee Scheme. Why You Should Consider Non-Bank Lenders.

SME Loans

As the spread of COVID-19 begins to slow domestically, we’re starting to see the light on the other side of isolation. While many businesses are planning to resume trading in a ‘COVID-safe environment’ over the next few months, the economic pain is still very real. According to the ABS, over 72% of businesses expect further adverse impacts to their cash flow until at least July. With sobering statistics like these, it’s easy to understand why the Government has implemented a range of stimulus measures to support small to medium businesses (SMEs) through this difficult period.

Two important schemes that have started to flow through to eligible businesses in recent weeks are JobKeeper and loans under the Government SME Loan Guarantee Scheme. Soon after the latter was announced, business owners expressed scepticism that banks would be able to turn these government-backed loans around fast enough to support their business’ working capital when it was needed most. As the rollout started, banks became inundated with applications and requests from tens of thousands of new and existing customers. With scheme-supported loan approvals taking up to a month from the banks, what other options are there?

Fortunately, the Government has recently approved non-bank lenders to offer loans under the Scheme. According to Australian Small Business Ombudsman, Kate Carnell, “the move should help small businesses get their hands on working capital loans quicker than they would with the big four banks.” So what are non-bank lenders and how might they help your business?

What are Non-Bank Lenders?

Non-bank lenders are financial institutions that offer all types of loans to consumers and businesses but do not hold a banking licence. This means that these lenders do not offer deposit accounts and aren’t regulated by the Australian Prudential Regulation Authority (APRA). However, they are still required to follow the relevant lending codes and are governed by the Australian Securities and Investment Commission (ASIC) to ensure their products and services are transparent, fair and of a high standard.

“They provide necessary competition, flexibility and differentiation in an otherwise concentrated business financing market”

Since non-bank lenders are not able to accept deposits, they source their funds from wholesale money markets, including our local banks or overseas financial institutions. These lenders play an essential role in providing necessary competition, flexibility and differentiation in an otherwise concentrated business financing market.

The Advantages of Non-Bank Lenders

There’s a good reason the Government has approved respected non-bank lenders such as Prospa, OnDeck and GetCapital to offer loans under the Scheme. While the banks are busy dealing with an influx of countless mortgage deferrals, hardship requests, refinance applications all while experiencing service disruptions, alternative lenders are focusing on what they do best, lending to businesses.

According to Ms Carnell, “the thing that’s good about these guys is they are used to lending unsecured, and they are used to lending quickly,” referring to the nature of the products non-bank lenders typically offer. While banks usually offer secured asset-backed finance, alternative lenders and fintechs have filled the market demand for unsecured business loans – a vital feature of the SME Loan Guarantee Scheme.

“The Scheme has levelled the playing field allowing non-bank lenders to offer lower rates, backed by the Government’s guarantee”

Furthermore, these lenders offer more flexibility as they assess each application on your unique situation and merits. They’re also not necessarily more expensive. While many factors impact the interest rate you’re offered, the Scheme has levelled the playing field allowing non-bank lenders to offer lower rates, backed by the Government’s guarantee. The guarantee under the SME Loan Scheme also gives borrowers confidence that the Government considers these providers to be trustworthy and sufficiently secure to supply these much-needed working capital loans. Rest assured, non-bank lenders are well placed to facilitate loans under the Scheme in an agile manner.

Need Working Capital Immediately?

Loans issued under the Scheme are repayment-free for six months, with eligible borrowers still needing to demonstrate their ability to make the payments after this holiday. If your business has tax debts or wasn’t profitable enough before COVID-19, you might not qualify for a loan from your lender, even with the Scheme in place. Are there any other measures you or your business could take advantage of? You now have until the end of May to register for the JobKeeper program, if you haven’t already.

If you’re still having trouble solidifying your finances, consider other financing options such as debt consolidation, refinancing or unlocking the equity in any of your owned properties. Across all industries, customers are holding on to payables for longer. If you’ve had trouble with your customers not paying on time, invoice finance can help you unlock the cash held up in your unpaid invoices.

I recently held a webinar explaining the SME Loan Guarantee Scheme and everything you need to know, including alternative options if your business is unlikely to qualify. Watch the full video here with 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 or alternative financing arrangements, please give me a call.