The SME Recovery Loan Scheme

• Financing a Business

The Government’s SME Recovery Loan Scheme is expected to support the economic recovery and to provide continued assistance to businesses currently receiving JobKeeper. The Government will work with lenders to ensure that eligible businesses will have access to finance to maintain and grow their businesses when JobKeeper ends.

The Scheme is enhancing lenders’ ability to provide cheaper credit to eligible businesses, allowing many otherwise viable SMEs to access vital additional funding to get through the impact of COVID-19.  

Finally, businesses that were able to participate in phase 1 and phase 2 loans can also apply for loans under the scheme. We are uncertain as to whether this comment, included in the Treasury information, provides a business the opportunity to access the Recovery Loan scheme if it didn’t qualify for JobKeeper between 4 January and 28 March, but did receive a phase 1 or phase 2 loan. We will seek to clarify this over the coming days and provide an update as soon as possible.

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

• The Government will guarantee 80% of the loan amount
• Payment deferrals may be offered by Lenders of up to 24 months
• Loans can be used for a broad range of business purposes, including to support investment. Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme.
• In addition to phase 1 and 2 loan limits, borrowers can access up to $5 million in total
• Loans terms are capped at 10 years, including the payment deferral 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 per cent, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise overtime.

Whilst loans issued under the scheme can be used to refinance existing loans or a wide range of other business opportunities (i.e. purchasing commercial property or business acquisitions), it cannot be used to:

• Purchase residential property;
• Purchase financial products;
• On-lend to an associated entity; or
• lease, rent, hire or hire purchase existing assets that are more than halfway into their effective life.

Loans under this scheme may be used to refinance any pre-existing debt of an eligible borrower, including those loans under the phase 1 SME Guarantee Scheme. There will be some restrictions on refinancing loans, for example not allowing refinancing of:

• loans that are more than 30 days in arrears; or
• debts of borrowers who have entered external administration or are insolvent. 

Lenders will be required to disclose to the borrower the effective interest rate at the loan agreement date.

Phase 2 of the existing SME Guarantee Scheme will remain open to eligible borrowers until 30 June 2021, and SMEs with Phase 1 or Phase 2 loans will be able to apply for loans in SME Recovery Loan Scheme.

Please do not hesitate to contact us if you would like us to review your eligibility for the SME Recovery Loan Scheme.