The SME Loan Scheme, Small and medium-sized enterprises (SMEs) are now eligible to borrow up to $5 million dollars as part of the federal government’s decision to expand its loan scheme. The recently announced expansion will be included in the governments post-JobKeeper support package which aims to financially assist SMEs.  

The SME loan scheme will be an adaptation of the SME Guarantee Scheme which was introduced in March 2020. The scheme provides loans of up to $5 million, 80% of the loan is guaranteed by the government and 20% is paid by a participating bank.

The original Guarantee Scheme was introduced under the “The Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme” on 23rd March 2020 to assist businesses with re-opening. Under this initiative the Australian government introduced support up to $40 billion of lending to SMEs by guaranteeing 50 per cent of new loans issued by participating lenders to SMEs.   

This scheme has been considered a success as it enhanced lenders ability to provide cheaper credit, thus giving many otherwise viable SMEs access to vital additional funding in order to help their business make a successful recovery from the impact of covid-19 restrictions and have more financial support to invest for the future.  

To be eligible for the new scheme, businesses must have received JobKeeper between January 4 and March 28 2021, and must have a turnover of either $250 million or less. Self-employed workers and non-profit businesses are also eligible for the loan.

The revised loan scheme will offer much needed support to businesses across the country who are part of industries that are still struggling to recover from the impact of the covid-19 pandemic. The scheme will provide businesses with an opportunity to build a bridge to reach the other side of the crisis and to keep their staff employed.

Loans for the scheme will be offered by a participating commercial bank. Both unsecured and secured lending will be allowed under the scheme.

The SME Loan Scheme, Businesses can use the loan to support investment or refinance pre-existing debt which includes debt from the original SME guarantee scheme.  The loans are also eligible to be used to purchase a commercial property or to purchase another business. The scheme cannot be used to purchase a residential property, financial products or lease, hire, rent or purchase existing assets that are more than half-way into their effective life.

The loan will be available for a term of up to 10 years and will include an option for a repayment holiday period. Banks’ lending the money to the borrowers can offer the business a repayment holidays of anywhere up to 24 months.

The interest rate applied to the loans will be decided by the lenders. The interest rate will be set at a cap of around 7.5%. The federal government has revealed that there will be some flexibility available for interest rates on variable rate loans to rise, if market interest rates increase in the future.

All banks involved in the scheme are required to disclose the effective interest rate, including whether it is variable or fixed, when the borrow agrees to the loan.

During the repayment holidays, interest rates will continue to occur and businesses will have to pay the accrued interest rate back once the repayment restarts.

The SME Loan Scheme, If a borrower is unable to repay the loan, the bank will follow a standard default procedure. It is crucial that the businesses are aware that it is their responsibility that the loan is repaid at the appropriate time.

If any business borrowing money under the scheme runs into any problems or conflict with the bank lending them the money they are able to submit a complain to the Australian Financial Complaints Authority (AFCA).

AFCA will not be taking into account decisions to lend under the scheme or the amount of a loan. However, AFCA is open to receiving complaints about issues of hardship or enforcement.