New SME loan scheme should stave off administrations, say experts

by Mike Wood15 Mar 2021

The new government scheme to help SMEs gain access to loans will aid in staving off administrations, according to CreditorWatch.

The plans, announced yesterday, will see a shift away from the JobKeeper model, which is due to expire on 31st March. Instead of directly contributing to businesses, Canberra will now encourage banks to loan to SMEs by backing up all qualifying loans up to 80% of their value.

The scope of businesses that can apply will be enlarged too, with the upper threshold for turnover raised to $250m from $50m and the maximum loan size increased from $1m to $5m. Repayment plans will be extended as well, allowing SMEs more time to pay lenders back.

"JobKeeper was essential in securing millions of jobs during the lockdown period,” said Harley Dale, Chief Economist at CreditorWatch. “However, with the vaccine roll-out underway and the gradual suppression of the virus across Australia, we’re starting to return to normality. The new SME loan scheme is reflective of this transitory period, and is a step in the right direction from the government as the Australian economic returns back to life.” 

CreditorWatch, who monitor administrations, think that the scheme will help SMEs to remain solvent during the next 12 months.

"Something rather than nothing was needed for businesses post-JobKeeper and the flow of credit into businesses will likely lead to fewer administrations in the short term,” said Dale. “However, the extension of the scheme is a continuation of the camouflaging effect that JobKeeper caused and there will be some risk that businesses taking advantage of the scheme won’t be commercially viable down the track. For now though, the scheme should provide SMEs with breathing space to adapt and grow their businesses."

"As supply becomes less constrained and demand begins to pick up, the policy will be welcomed with open arms from the business community. Clearly, there are sectors that will continue to struggle regardless of the domestic economy opening up, for reasons beyond their control.”

“For these types of businesses - particularly those in the tourism and hospitality sector - they’d benefit hugely from further targeted assistance, which the government has already hinted at."