Government-Backed Business Loans During COVID-19

The Australian Government’s SME Recovery Loan scheme is primarily focused on assisting businesses that are currently taking advantage of new JobKeeper initiatives. Working with lenders, the Australian Government has announced that it will ensure eligible businesses are able to access finance.

The financial solutions delivered by the SME Recovery Loan Scheme through lenders are intended to provide businesses to maintain their businesses and grow when the JobKeeper initiative ends. In simple terms, the scheme will enhance the ability of lenders to provide credit at lower rates, which will allow small and medium-sized businesses to recover from the economic impact of the COVID-19 pandemic.

The structure of the SME Recovery Loan Scheme operates on a framework established in the Coronavirus SME Guarantee Scheme, which will support up to $40 billion of lending to businesses. The SME Guarantee Scheme is split into two phases, and is open to businesses that received the JobKeeper Payment between January 4 2021 and March 28 2021.

In order to qualify for the SME Recovery Loan Scheme, businesses must be eligible for and have received the JobKeeper stimulus initiative. First announced in early 2020, the Jobkeeper payment provides businesses with up to $1,500 per fortnight in order to ensure the employment of key personnel.

Changes to the JobKeeper initiative announced in August 2020 saw JobKeeper extended for an additional six months until March 2021 along with a series of changes to the eligibility tests used to determine business eligibility. For more information on JobKeeper eligibility, see the Fullstack guide to JobKeeper Payment Eligibility Alternative Tests: What’s to Know.

The SME Recovery Loan Scheme is available to businesses that have:
• Received JobKeeper payments between January 4 2021 and March 28 2021
• Turn over up to $250 million per year

Both individuals and non-profit businesses are eligible for the SME Recovery Loan Scheme, as well as businesses that have accessed loans during both phase 1 and phase 2 of the JobKeeper initiative.

The SME Recovery Loan Scheme will see the Australian Government guarantee loans provided to Australian businesses by lenders that participate in the scheme. The key features of the SME Recovery Loan Scheme are as follows:
• The Australian Government will guarantee 80 percent of the loan amount provided to eligible Australian businesses
• Lenders are provided with the option to provide borrowers with a repayment holiday of up to 24 months
• Borrowers will be provided with the opportunity to access up to $5 million in total
• Loans are available on both a secured and unsecured basis
• Loan terms range up to 10 years with additional repayment holiday periods of up to 25 months
• Interest rates are determined on a case-by-case basis by lenders, but will be capped at a maximum of 7.5 percent
• Credit accessed through the scheme can be used for a wide range of different business purposes, which include supporting investment or refinancing pre-existing debt of eligible borrowers

The SME Recovery Loan Scheme allows lenders to offer any product deemed suitable for eligible businesses, but cannot include credit cards, debit cards, business cards, or charge cards. The loans provided by lenders through the scheme can take any other form, however, on the proviso that the criteria outlined by the scheme are met by the lender and borrower.

While the loans issued through the SME Recovery Loan Scheme can be used for a variety of business purposes such as supporting investment, they cannot be used to:
• Lend to associated entities
• Purchase financial products
• Purchase residential property
• Rent, lease, hire, or hire purchase existing assets that are over halfway through their effective life

Notably, there are a number of restrictions placed on refinancing loans through the SME Recovery Loan Scheme. Loans that are more than 30 days in arrears cannot be refinanced. Similarly, borrowers that are insolvent or have entered external administration can’t use the SME Recovery Loan Scheme to refinance debt.

While it’s not possible to use credit accessed through the SME Recovery Loan Scheme to purchase residential property, loans can be used to acquire other businesses or purchase non-residential property.

This is another of the Government-Backed Business Loans. The SME Loan Recovery Scheme operates alongside the Australian Government’s Coronavirus SME Guarantee Scheme, which will support $40 billion of lending to small and medium enterprises including sole traders and non-profits. The SME Guarantee Scheme guarantees up to 50 percent of loans issued by lenders that participate in the scheme.

The Coronavirus SME Guarantee scheme predates the SME Recovery Loan Scheme — the first phase allowed Australian businesses to access unsecured working capital loans from March 2020 until September 30, 2020.

The second phase of the Coronavirus SME Guarantee Scheme began on October 1, 2020, and concludes on June 30, 2021.

The Coronavirus SME Guarantee Scheme differs from the SME Recovery Loan Scheme, and provides Australian SMEs with access to loans under the following terms:
• Eligible borrowers can access up to $1 million in total
• Loans accessed through the Coronavirus SME Guarantee Scheme can be used for a variety of purposes such as investment support
• Interest rates are capped at 10 percent, but are determined by lenders

The Australian Government’s SME Recovery Loan Scheme operates as an extension of the Coronavirus SME Guarantee scheme, expanding the government guarantee from 50 percent to 80 percent. Government-backed business loans accessed through the scheme will be available from April 1, 2021, and must be approved prior to December 21, 2020.