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New SME Recovery Loan Scheme

New SME Recovery Loan Scheme

Varun Kumar, Simon Alford

On 11 March 2021, the Government announced a new SME Recovery Loan Scheme (the 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 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).

Eligible Businesses
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. Both 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. 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. However, we 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. As can be seen from the table below, the terms under the new SME Recovery Loan Scheme are more favourable for borrowers than the existing Coronavirus SME Guarantee Scheme.

Summary - SME Recovery Loan Scheme vs the Coronavirus SME Guarantee Scheme

  SME Recovery Loan Scheme Coronavirus SME Guarantee Scheme - Phase 2
Eligible businesses Recipients of the JobKeeper payment (specifically small and medium sized businesses with up to $250 million turnover) between 4 January 2021 and 28 March 2021. Both self-employed individuals and non-profit businesses are 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. SMEs, including sole traders and not-for-profits, with a turnover of up to $50 million are able to apply for loans under the Scheme.

SMEs that accessed loans under Phase 1 of the Scheme are able to apply for loans in Phase 2.


 
Amount Up to $5 million in total, in addition to the Phase 1 and Phase 2 loan limits of the Coronavirus SME Guarantee Scheme. Up to $1 million for Phase 2 (up to $250,000 for Phase 1).
 
Loan terms Up to 10 years, with an optional repayment holiday period. Lenders are allowed to offer borrowers a repayment holiday of up to 24 months. Loans are for terms of up to 5 years, and a repayment holiday is not required, but can be offered at the discretion of the lender.
 
Security Loans can be either unsecured or secured (excluding residential property). Loans can be either unsecured or secured (excluding residential property).
Interest rate Determined by lenders but capped at 7.5%. Determined by lenders but capped at 10%.
Timing Loans will be made available from 1 April 2021 until 31 December 2021. Phase 1 ended on 30 September 2020. Phase 2 commenced on 1 October 2020 and will be available for loans made by participating lenders until 30 June 2021.


More information
If you would like to find out more about how this scheme may benefit your business, please contact your local Moore Australia advisor today.