Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme

The Australian Government recently announced new changes¹ to the existing Coronavirus SME Guarantee Scheme, which is supporting up to $40 billion of lending to SMEs to assist in this time of economic uncertainty.

Small and medium enterprises (SME) can now borrow up to $1 million for terms of up to 5 years.

The government is providing a guarantee of 50% of the loan’s value to SME lenders for new, unsecured loans, which are to be used by businesses to access working capital to help get them through the impact of COVID-19.

The scheme has just been updated for its second phase, most notably increasing the borrowing amount from $250,000 to $1 million as the economic outlook continues to be challenging.

What is the current scheme?

The initial phase of the scheme was announced by the government in March 2020, and since it came into effect, more than 15,600 businesses have accepted loans worth $1.5 billion². Participating lenders are currently offering guaranteed loans up to 30 September 2020 on the following terms: 

• Maximum total size of loans of $250,000 per borrower
• The loans will be up to 3 years, with an initial 6 month repayment holiday
• The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan

What are the changes?

The second phase of the scheme will begin on 1 October 2020 and will be available for loans made until 30 June 2021. Lenders can offer loans on the same terms as the current scheme, with the following enhancements:

• The maximum loan size will be increased to $1 million per borrower
• Loans can be used for a broader range of business purposes, including to support investment in a period of economic recovery
• Loans can be up to 5 years rather than 3 years and whether there will be a six month repayment holiday will be at the discretion of the lender
• A loan can be either unsecured or secured (excluding commercial or residential property)

Am I eligible?

The loans on offer are available to some 3.5 million SMEs, but they will still be subject to lenders’ credit assessment processes. The lenders will look through the cycle and take into account the uncertainty of the current economic climate caused by the COVID-19 pandemic. Extending credit, and management of the SME loan, will still remain with the lender.

Get expert advice                                                     

The scheme can be complex and each lender’s solution can be different, so it’s important to seek advice from our experts. If you’re a small or medium business that’s interested in the scheme, contact your Mortgage Choice broker, who will be able to advise you on the best options available.

Sources

1 https://treasury.gov.au/coronavirus/sme-guarantee-scheme
2 https://www.theaustralian.com.au/nation/pms-word-1m-loans-guaranteed/news-story/42ab6f3c713912dbcf0368852b7bef23