SME Loan Recovery Scheme extended to June 2022

josh frydenberg SME Loan Recovery Scheme

Treasurer Josh Frydenberg. Source: AAP/Daniel Pockett.

The federal government is extending the SME Loan Recovery Scheme for another six months, meaning it will remain in place until after the election.

The loan scheme is itself an extension of the SME Loan Guarantee Scheme, introduced as part of the government’s COVID-19 support measures in early 2020.

It was due to expire at the end of December 2021. The extension means loans under the scheme will remain available until June 30, 2022.

Under a direct continuation of the existing scheme, businesses with a turnover of less than $250 million will be able to access loans of up to $5 million over a term of up to 10 years.

However the guarantee offered by the government will be reduced from 80% to 50%.

The extension is intended to support businesses still grappling with the effects of the lockdowns in New South Wales and Victoria throughout 2021, a statement from Treasury said.

Dropping the guarantee amount will help “drive a private-sector led recovery”, the statement said.

“The Australian economy is primed to recover strongly from COVID-19,” Treasurer Josh Frydenberg reportedly said.

“We are handing the baton to the private sector and we want them to run with it.”

According to an article from The Australian, Treasury expects about 24,000 small businesses to take up new loans.

To date, the loan guarantee scheme has supported some 80,000 loans worth about $7.3 billion in total. Those figures, however, are still considerably less than first anticipated.

The latest iteration of the SME loan guarantee scheme

First announced back in March 2020, the loan guarantee scheme was intended to encourage banks and lenders to extend credit to SMEs.

The scheme promised to support $40 billion in loans for small businesses. By the following September, however, only $2 billion had been lent out, with business owners saying they faced barriers when applying for loans, and that the scheme simply wasn’t well suited to them.

While the Treasurer is now boasting about the $7.3 billion in loans issued under the scheme, that still falls well short of what was originally pledged.

In October 2020, the scheme was extended until the end of June 2021, with rules relaxed to allow participation from some non-bank lenders.

The scheme was later extended again, with a tweak making loans available only to businesses that had been receiving JobKeeper payments.

It was also re-branded to become the SME Loan Recovery Scheme, but fell short of calls from the community to provide HECS-style loans with repayments based on revenues.

At that time, the value of loans available was increased to $5 million, with the amount guaranteed by the government increased from 50% to 80%.

In August, yet another extension to the scheme removed the JobKeeper requirement.

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James Hill
James Hill
1 month ago

Great idea, but poor execution. Banks are reluctant to lend out with tying residential home into any lending propsosal or pushing you toward higher interest facilities such as overdrafts where they can demand residential secuity to support the application.