Your guide to the Australian Government’s Coronavirus (COVID-19) SME Guarantee Scheme

Your guide to the Australian Government’s Coronavirus (COVID-19) SME Guarantee Scheme

The Government has unveiled a new scheme to support the flow of credit for SMEs, who are some of the hardest hit by the coronavirus pandemic.

Uncertainty. We are all experiencing it right now, and the question on most people’s minds is “how long do we have to wait to come out of this?” We are seeing a concerted effort by the government to flatten the curve using the necessary Draconian measures; however, these measures are impacting the livelihood of SMEs across Australia.

We are seeing a concerted effort by the government to flatten the curve using the necessary Draconian measures; however, these measures are impacting the livelihood of SMEs across Australia

Businesses that ordinarily would be operating are now on a cusp of closing, and there’s no denying that has a wider spread effect on the economy.

To support small businesses during these tumultuous times, government and banks alike have shown their support by providing emergency financial relief strategies.

How is the government helping SME or small businesses?

The government has announced the ‘Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme‘. Under this scheme, the government will guarantee 50% of new loans issued by eligible lenders to SME.

The government will initially allocate $40 billion guaranteed loan allocation through the expression of interest (EOI) by the lenders.

Does it mean that businesses would need to provide additional security to the eligible lenders?

No. As a business, you can borrow 100% of the loan as an unsecured loan. This scheme is available from April until 30 September 2020.

What does this Government scheme look like for businesses?

The scheme for businesses is as follows:

• Maximum loan amount: $250,000
• Term Loan: Up 3 years (extension may be granted by the lender on a case-by-case basis)
• It comes with 6 months holiday repayment plan (This means borrowers do not need to make their repayments for the first 6 months with interest accrued and added to the loan)
• No security required

Am I eligible for the Coronavirus SME Guarantee Scheme?

To be eligible for the scheme, you need to have an active business impacted by the coronavirus with a turnover of less than $50 million in the previous financial year or expected turnover of less than $50 million in the current financial year.

Both self-employed individuals and non-profit businesses are eligible.

The application is subjected to credit assessment funnel based on the lender’s lending criteria. Given that the scheme is designed to assist in times of crisis for businesses, there is an expectation that lenders will apply some “common sense” approach by taking into account the uncertainty of the current economic conditions.

A question that lenders typically will keep front of mind for lending during the coronavirus is whether the borrower would be able to afford the loan up to $250,000.

This means that not all applications will be successful despite the lender’s best effort in trying to help secure your loan.

How does the Coronavirus SME Guarantee Scheme help businesses facing cash flow difficulties?

The purpose of the loans is typically used to supplement businesses current and upcoming cash flow needs, including rent and staff expenses.

How do I access the Scheme?

This will ultimately depend on which commercial lender is participating in this scheme. If your current financial institution is not participating, then you may send your inquiries to other commercial lenders because participating lenders are required to consider applications from new customers.

When applying, you or your broker will be required to provide additional details to answer the following questions:

• How has the business cash flow been impacted by COVID-19?
• What actions are being taken to preserve the business cash flow?
• Is there an opportunity for the business to diversify? If so, what is the impact?
• Is there any reliance on another industry to supply goods and services? If yes, how does this impact the business and are there alternatives available?

How do I know if I should apply?

Just like getting any other loans, you need to understand if you can afford to make your repayments. It’s important to calculate the repayment amount and the term loan, to ensure you can meet your obligations both now and into the future.

For example:

Loan Amount: $250,000
Term Loan: 30 months or 2.5 years (including holiday repayment)
Interest Rate: 6.5%
Estimated Loan Repayment: $9,051 per month

We have used a higher interest rate to be conservative. If you think the above repayment is not manageable, you may want to consider other alternate options.

Which lenders are offering loans under the Scheme?

The roll-out with lenders will be listed in dribs and drabs. However, there are some lenders that are on the front foot with this.

The inquiries can be submitted online, through your mortgage broker or through your business banker.

• Commonwealth Bank of Australia
• National Australia Bank (NAB)
• Westpac
• ANZ
• St. George Bank
• Bankwest
• Suncorp

We will continue to update this page in real-time as we receive more information on eligible lenders.

What type of loans are available?

The loans under this scheme are designed to be used business purposes only, on things such as rent and staff expenses. This means it must be used to support current and upcoming cash flow needs. A range of loans can be provided depending on the nature of your business, but the more common facilities would be overdraft and term loans.

Credit card facilities (including charge cards) are not eligible under the Scheme.

What are the interest rates of the loans?

The interest rate is determined by the commercial lenders so it is important to do your research first before committing to one lender.

Commercial interest rate typically ranges from 4.5% – 6.5% depending on the lender.

Please note: The range is only an indicator. This can change if there more lenders participating in this scheme. 

What happens if I cannot repay the loan?

Borrowers are fully responsible for repaying the loans made under the Scheme. If the borrower is unable to meet repayments, lenders will follow usual default processes.

What are my options if I do not want to apply for this loan?

There are alternate options that you can consider if the SME Guarantee loan is not right for you. This includes;

• Accessing your own savings
• Reducing business expenses
• Accessing Government incentives – refer to this post on the government stimulus package for more information.
• Deferring repayments and / or varying other loan facilities
• Negotiate directly with your creditors

Before committing to this SME loan, borrowers need to understand that this Coronavirus SME Guarantee is not a grant or a handout and the loan is expected to be paid back.

If you are unable to meet your terms of the loan, it may have an impact on your credit file and ability to borrow in the future.

If you need assistance in applying for a business loan during this time, Rateseeker is here to help. Please reach out to us here, and one of our experienced brokers will be in touch within 24 hours.