The government has opened up restrictions on access to its SME Recovery Loan Scheme. Introduced in early 2020, the scheme is part of the federal economic response to Covid-19 targeting small businesses. Thus far, these loan schemes have seen about 74,000 loans disbursed, totalling around $6.2 billion in funding. There have been several amendments made to the scheme since its launch with the most recently announced changes pertaining to its eligibility criteria and loan size.
Treasurer Josh Frydenberg confirmed that qualifying businesses no longer needed to have previously received JobKeeper in the March 2021 quarter, nor had to be a flood affected business. Turnover eligibility was also extended from $50 million to $250 million.
The Morrison government has also agreed to expand the limit of eligible loans from $1 million to $5 million with a repayment term of up to 10 years. Lenders may also be granted a repayment holiday of up to 24 months. The government will now also guarantee a higher proportion of loans with a cost split of 80-20 with banks.
The funds borrowed may be used for a range of business purposes, including supporting investment and refinancing pre-existing debts. This also applies to any borrowing already taken under the SME Guarantee Scheme. The unguaranteed portion of the loans may be secured or unsecured, and interest rates though at the discretion of the lender will be capped at about 7.5%.
The amendments will aid more businesses in accessing cheaper credit and additional funding at a time when many SMEs are struggling to survive amid prolonged pandemic lockdowns. The Xero Small Business Index fell by 41 points in July, the steepest decline since April 2020. Though some sectors have made some gains in the first half of 2021, performance was dragged down by the worst hit segments of arts and recreation, and hospitality. The more recent pandemic setbacks appear to have reversed gains made by even the more resilient recoveries.
The SME scheme changes are also welcome news for lenders. Banks like Westpac and NAB have expressed approval and reiterated their support for businesses still struggling under pandemic lockdowns. They are encouraging businesses to get in touch with lenders and find out what options they may qualify for when it comes to financial assistance. There are 18 lenders currently participating in the scheme as per the federal government. The loans will be available via participating lenders until 31 December 2021.
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