Government SME Guarantee Loan Scheme - Phase 2

The Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme is supporting up to $40 billion of lending to SMEs (including sole traders and not-for-profits) by guaranteeing 50 per cent of new loans issued by participating lenders to SMEs.

The Scheme is enhancing lenders’ ability to provide cheaper credit, allowing many otherwise viable SMEs to access vital additional funding to get through the impact of Coronavirus, recover and invest for the future.

Phase 1 allowed for lending up to $250,000 for unsecured working capital loans and closed on 30 December 2020. It was implemented to help SMEs manage disrupted cashflows and get through the impact of the Coronavirus.

The Scheme has now been extended and enhanced to support businesses in recovery. Phase 2 includes targeted amendments to the Scheme’s parameters to meet the evolving needs of SMEs. It will continue to support lenders’ ability to provide credit and ensure that SMEs benefit from low interest rates.

Phase 2 of the Scheme commenced on 1 October 2020 and will be available for loans made by participating lenders until 30 June 2021.

Eligible Businesses

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.

Key Features

Participating lenders are offering guaranteed loans on the following terms under Phase 2:

  • Loans can be used for a broad range of business purposes, including to support investment.

  • Borrowers can access up to $1 million in total.

  • 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.

  • 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 10 per cent, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.

Eligible Loan Uses

Loans issued under the Scheme can be used 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; or

  • lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.

Borrowers can seek to refinance an existing Phase 1 loan into a Phase 2 loan. Borrowers may also refinance a Phase 2 loan between different participating lenders during the application period of 1 October 2020 and 30 June 2021. Loans issued under the Scheme cannot be used for any other refinancing purposes.

"Phase 2 is particularly to strategic for the Government to transition the economy from survival to growth by re-imbursing working capital with eligible SMEs" - Kristen Kubank, Director of KPI Business Advisory.

For more information, or if you would like assistance in preparing an application for your business to access the Federal Government-backed loan support package, get in touch with the team at KPI Business Advisory.

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