Australian Government Upgrades Loan Scheme to Bolster Growth for Small and Medium Businesses

July 21, 2020 Updated: July 21, 2020

The federal government announced on July 20 that it will ramp up its COVID-19 guaranteed loan scheme for small and medium-sized enterprises (SMEs). The expansion aims to improve access to affordable long-term funding to help businesses emerge from the pandemic-induced crisis in a stronger position.

Under the original scheme implemented in early April, the government will provide a guarantee of 50 percent to eligible lenders for all new unsecured loans to businesses with annual turnovers of less than $50 million. The low-interest loan, up to $250,000 with a term no more than three years, can only be used for working capital.

The upgraded second-phase of the scheme, set to run from Oct. 1 to June 30 next year, lifts the loan cap to $1 million, which can be used for a wider range of investments. It also extends the maximum term of a loan from three years to five years.

Other changes include allowing secured lending and removing the requirement of a six-month repayment holiday.

The Treasurer Josh Frydenberg said the expanded SME loan program focuses more on getting businesses to grow and create jobs, rather than just stay afloat.

“The next phase of the Coronavirus SME Guarantee Scheme will help businesses move out of hibernation, successfully adapt to the new COVID-safe economy and invest for the future,” he said in a joint statement with the minister for employment and small business Michaelia Cash.

The chief executive of Commonwealth Bank Matt Comyn welcomed the new phase of the scheme as a “creative solution,” saying it will help businesses play their part in “helping the country and Australians get back on their feet” during a long and winding recovery.

“Today’s lifting of the amount available to $1 million and the loan extension to five years will allow SMEs access to low-cost, guaranteed funding and to make the investments needed to get people back to work, create new jobs and lift confidence across the economy as part of the broader efforts to combat the impact of the coronavirus on our country,” he said in a statement on July 20.

National Australia Bank (NAB) also expressed support for the extension.

“The changes will make it available to more businesses, for longer, to help them rebuild—and support Australia’s recovery,” the bank’s chief executive Ross McEwan said in a statement.

While the government has committed its support for up to $40 billion in SME loans, just 15,600 business loans worth $1.5 billion have been issued so far, with CBA issuing half of loans and NAB approving 5,500 loans.

More Needed to  Unlock Growth for SME

The announcement came as the country is grappling with the second outbreak of COVID-19 cases in Victoria, with many businesses in the country’s second-largest economy having to shut down again.

The sweeping lockdown has had a significant impact on Australian businesses, 99 percent of which are small and medium businesses.

A survey released by the Australian Bureau of Statistics (ABS) on June 24 showed that two-thirds of businesses reported a decrease compared to last year. Of those businesses, more than three in every ten estimated that revenue had fallen by more than 50 percent.

It also found that 30 percent of small businesses and 24 percent of medium businesses reported that current cash on hand would support operations for less than three months.

According to the latest figures as of June 19 by the Australian Banking Association, over 216,372 business loan repayments worth $59 billion have been deferred since the pandemic hit.

In a commissioned study published on July 16 (pdf), NAB urges for eight key actions to support long-term growth for small and medium businesses, which contribute 56 percent of total production in Australia’s economy.

The proposed reforms include making it easier to hire new staff, cutting regulations, opening new procurement opportunities, and furthering access to capital.

The study, titled “Supporting Economic Recovery: What we can do for Small Business,” found that one in five small businesses is having difficulty in getting finance, and slow approval and high funding costs have hampered their expansion.