On 11 March 2021, the Government announced a new SME Recovery Loan Scheme which will assist eligible businesses to access finance to maintain and grow their businesses when JobKeeper concludes at the end of March 2021.
The SME Recovery Loan Scheme is designed to support the economic recovery, and to provide continued assistance, to firms currently on JobKeeper (ending March 2021). The Government will work with lenders to ensure that eligible firms will have access to finance to maintain and grow their businesses when JobKeeper ends.
The Scheme builds on the framework established in the two phases of the Coronavirus SME Guarantee Scheme, and is specifically targeted at SMEs currently receiving JobKeeper (i.e. the scheme is only open to certain recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021).
The scheme is open to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 – specifically small and medium sized businesses with up to $250 million turnover. Self‑employed individuals and non-profit businesses are also eligible.
Businesses that have accessed loans in Phase 1 and Phase 2 of the Coronavirus SME Guarantee Scheme can also apply for loans under the scheme.
FEATURES OF THE LOANS
Participating lenders will be offering guaranteed loans on the following terms:
- Borrowers can access up to $5 million in total, in addition to the Phase 1 and Phase 2 loan limits of the Coronavirus SME Guarantee Scheme.
- The Government will guarantee 80% of the loan amount.
- Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
- Loans are for terms of up to 10 years, with an optional repayment holiday period.
- Loans can be either unsecured or secured (excluding residential property).
- The interest rate on loans will be determined by lenders, but will be capped at around 7.5%. Note, there will be some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.
- Loans will be made available from 1 April 2021 and must be approved before 31 December 2021.
ELIGIBLE LOAN USES
Loans issued under the scheme can be used to refinance existing loans or for a broad range of businesses purposes (including to support investment), but cannot be used to:
- purchase residential property
- purchase financial products
- lend to an associated entity
- lease, rent, hire or hire purchase existing assets that are more than half way into their effective life
Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the Coronavirus SME Guarantee Scheme. There will be some restrictions on refinancing loans, such as not allowing loans that are more than 30 days in arrears to be refinanced, or borrowers who have entered external administration, or are insolvent, to refinance debts.
Importantly, lenders can vary or restructure loans as long as they continue to meet eligibility criteria (including the maximum loan term), and do not increase the loan limit after approval.
Loans can be used to purchase non-residential real property (such as commercial property), or for the acquisition of another business. Lenders will be able to rely on a declaration from the borrower in regards to the purpose of the loan.
APPLY FOR THE LOAN – THE PROCESS
- The loans will be offered through participating commercial lenders and broadly the process will be as follows:
- Approach a lender – Loans backed by the Scheme will be available through participating commercial lenders.
- Lender makes a decision – The decision on whether to extend credit, and management of the loan, will remain with the lender.
You can approach other lenders – Businesses are encouraged to shop around and compare products offered by participating lenders. We do, however, caution making applications with multiple lenders as applications that do not proceed may appear on your credit report.
CORONAVIRUS SME GUARANTEE SCHEME
With the existing Coronavirus SME Guarantee Scheme ending on 30 June 2021, and the new SME Recovery Loan Scheme commencing on 1 April 2021, both schemes will be in operation for a short period of time. In our opinion the terms under the new SME Recovery Loan Scheme are more favourable for borrowers than the existing Coronavirus SME Guarantee Scheme.
We are hopeful that the lenders will be more accommodating in granting such loans moving forward. Get in touch with Ben Heaney, Michael Durbridge or Eddie Griffith to understand more about turning around your business.