Fintech asks for SMEG 2 & 3 to be combined

by Mike Wood27 Jul 2021

A leading fintech has called for the government to significantly alter their SME Guarantee scheme to help lenders to get more money out to businesses that need it.

Under the most recent iteration of the government’s SME Guarantee, known as SMEG 3, Canberra will back up to 80% of loans given to ailing businesses, but only to those which received JobKeeper between January and March.

The previous scheme, SMEG 2, allowed lenders to support all businesses in need, though limited to 50% backing and $1m maximum loan.

Brokers criticised the previous iterations of the SMEG scheme as being “not worth the paper they were written on”: while many SMEs qualified for the scheme, very few passed any lending criteria, especially at big banks.

Now, the new scheme is easier for banks to lend to, but most businesses, including those in drastic in the latest lockdowns, don’t qualify.

According to Nick McGrath, CEO of SME fintech Moneytech, the best way forward is a combination of the old system and the new.

“With the SMEG2, part of the issue from both a bank and a fintech perspective is that the government is only guaranteeing 50% of the facility,” he said. “If we are lending to a COVID-impacting business, we are still taking the risk on 50% of the loan.”

“It’s great that the government has rolled that initiative out, but if I were a Big Four bank, it’s still a lot of risk to take on an SME that you know have suffered financially.”

“The good thing about SMEG2 was that any SME was eligible for a loan of up to $1m. Now they’ve rolled out SMEG3, which is much more commercially acceptable for fintechs and banks, but there are some issues. What would have worked well would have been a combination of SMEG 2 and SMEG 3.”

McGrath said that there was an issue getting cash out to what he described as “a really narrow group of businesses” that qualified for SMEG 3.

“During the first national lockdowns, most clients were impacted, because businesses across the country were shut,” he said. “From January to March, a lot more businesses were open and didn’t receive JobKeeper.”

“If the government removed the requirement for clients to have got JobKeeper, and continued to guarantee loans up to a value of 80%, banks and fintechs would take a much more aggressive approach to lending to businesses that need it.”