Expanded SME loan scheme now open to most Aussie businesses
Own a small business? The revamped SME loan scheme could help power you through 2022 with no repayments for 2 years.
The SME Loan Recovery Scheme, designed to support small businesses struggling due to the coronavirus pandemic and extended lockdowns, offers loans worth up to $5 million each.
And now, the loans are available to almost all businesses in Australia, provided you turnover less than $250m and can demonstrate some sort of COVID-related financial impact.
Who is now eligible for a government-backed SME loan?
Previously, to get one of these government-backed SME business loans, your business had to have received JobKeeper payments between January and March this year.
As of 1 October, that eligibility requirement has been stripped.
In fact, the financial criteria required to access one of these loans is now quite vague. According to Treasury:
There are many different ways a business may be adversely economically affected by the Coronavirus Pandemic. This includes, but is not limited to, a decline in business income. There should be an impact on the borrower, as a result of the Coronavirus pandemic, as at the loan application date.
Translation: these loans are now technically available to the majority of Australian small businesses.
To summarise – you're eligible for this loan if you meet the following criteria:
- You're an SME.
- You turn over less than $250m per year.
- You've been impacted by the pandemic somehow.
Eligible business owners can get access to the following:
- A repayment period of up to 10 years.
- A repayment holiday of up to 2 years (interest still accrues during this time).
- An interest rate cap, determined by each individual lender, but generally no higher than 7.5%.
- A loan that is backed by the government up to 80% (up from 50% originally). This means if you borrow $100,000 and default on the loan, the government guarantees repayment to the bank of up to 80% of the outstanding debt.
Say you're a struggling cafe. You could borrow $100,000 in October this year, use that money to invest in new equipment, marketing and staff training, and make no repayments on that loan until October 2023.
Businesses get the benefit of this cash-flow boost to help their business thrive as we come out of the pandemic – without the pressure of repayments on their cash flow.
For small business owners: What does that actually mean for you?
This access to funds is coming right as stressed businesses need it most.
According to the Mastercard Economics Institute, spending at small business retailers in CBDs is down 33% vs 2019.
The Federal Treasury reports that the SME Recovery Loan Scheme "will encourage more banks to support small businesses, and demonstrates the Government's commitment to back those businesses that are prepared to back themselves."
In a nutshell, these changes mean a wider range of potential businesses are now able to access these funds – businesses like mine.
When I'm not wearing my finance journalist hat at Finder, I'm also the co-owner of a restaurant on the Gold Coast.
Since the first 6-week lockdown at the beginning of the pandemic, we've been fortunate enough to trade through only a handful of lockdowns (3 days here, 8 days there, etc).
What also happens, however, is endless weeks afterwards of "restrictions". We're allowed fewer diners per square metre, and our income takes a hit as a result.
Businesses like ours can't demonstrate a consistent 30% drop in income, which was required to access JobKeeper. But now, we can get access to these loan funds, which we can spend on a whole range of business purposes.
Sounds too good to be true? Maybe it is...
To apply for these SME loans, you can approach your bank directly or through a mortgage broker.
A few of the brokers I've been speaking to have expressed how difficult these loans are to get approved.
One broker told me: "It's much easier to get a standard business loan because the banks have added so many additional criteria to the loan application process. So far I've tried to help 6 businesses get these loans, and none have been approved."
Which makes sense – banks are being super stringent on criteria because even with the government guarantee, they don't want to back zombie businesses that have a high chance of failing.
But if you satisfy the eligibility and loan criteria, and you're optimistic about your business's performance in the future, this could be just the thing you need to keep your business going.
Invest in more equipment, marketing, stock or other business needs: apply for a Big Four bank loan under the SME Recovery Scheme today