The Federal Government will extend and expand the SME Loan Guarantee Scheme by as much as $40 billion, the Treasurer has announced.
The move will see the government further back small and medium businesses that have been hit hard by the pandemic, as well as their lenders, by taking on a larger share of the backing.
Currently, the split is 50/50 between the banks and the government, but under the new extension, that will change to an 80% share taken by Canberra.
The new split is designed to encourage banks to take on loans from SMEs that are currently dependent on JobKeeper through March 2021. They will be able to apply for the new scheme from the beginning of April.
It will also increase the size of loans that are eligible, raising the maximum amount from $1m to $5m, and businesses that are eligible from those with a turnover of $50m all the way up to $250m.
Businesses that qualify for the new arrangements will be able to refinance their existing loans to take advantage of longer repayment schemes and better interest rates.
“This sends a message to businesses that wish to perhaps expand their manufacturing base, or those businesses that are still going through a difficult time but know they have a viable business, that they can go to their bank and openly discuss their situation,” said Peter Strong, CEO of the Council of Small Business Organisations Australia. “It provides the flexibility that businesspeople will need in these difficult times.”
Some reactions were more muted, as the new scheme essentially foists the function of JobKeeper onto the private sector.
“We welcome the loan scheme in principle, but we’re concerned it won’t be as effective as it could be if it were combined with measures incentivising businesses to seek professional advice,” said Jane Counsel of CPA Australia, Australia’s leading professional accounting body.
“The loan scheme shifts the economic burden from Australian taxpayers back to businesses themselves, with the taxpayer in a new role as guarantor, which we don’t think is a bad thing.”
“The loans scheme will make a big difference to cash starved businesses. But professional advice about how best to use these funds could be the difference between business survival and recovery. Practically, businesses who do both will have a greater chance of staying afloat in the long term.”
“Under the scheme, lenders can offer businesses a “repayment holiday” of up to 24 months. We recommend business make repayments if they can, because interest will accrue during this period, potentially creating cash flow difficulties when the holiday ends.”