The SME Loan Guarantee Scheme just expanded again. Now it’s huge.

SME Loan Guarantee

You may faintly remember the Federal Government’s SME Loan Guarantee Scheme from late 2020, which also received a small boost earlier this year. 

Unfortunately, it’s pretty likely most of us had the same experience with the scheme. You read the list of eligibility requirements, realised your SME wasn’t eligible, and never thought about it again. 

Yet many of those requirements are now gone, opening up the revamped SME Loan Guarantee Scheme to thousands of new businesses.  What’s more, the loan conditions are now much more favourable. It’s all part of a number of sweeping changes that came into effect on October 1st, which I’ll break down below.

The number of eligible SMEs has skyrocketed under the relaxed rules. 

Previous iterations of the loan guarantee scheme required SMEs to have qualified for JobKeeper in the March 2021 quarter, or to have been otherwise affected by floods. Yet these two requirements prevented the majority of businesses from applying. Now they’ve been removed.

Instead, SMEs only need to prove they’ve been affected financially by lockdowns. Speaking to The Sydney Morning Herald, MoneyTech chief executive Nick McGrath put the scale of this shift into perspective. As an accredited lender under the scheme, the fintech firm is expecting the number of successful applications to soar almost twentyfold under the new rules.

“It was very restrictive, the business had to fit inside a particular box, and we were only able to help maybe 1 in 20 applications that we received,” said McGrath. “The government has relaxed the restrictions… which I believe will allow us to help 19 out of 20 borrowers.”

Though the initial scheme was fairly unpopular, this expanded eligibility has garnered praise across the board. Even the Australian Financial Review – which generally favours caution over optimism – expects this expansion to have a significant positive effect on economic growth.

These loans aren’t just more accessible. They’re bigger, and they’re a lot better.

From October 1st, the lending conditions have also been improved significantly. The maximum loan amount has been lifted by five times to $5 million, and the maximum tenor has been doubled to 10 years. These loans can be secured or unsecured, and are open to SMEs with an annual turnover of up to $250 million.

Businesses can now use the loan to refinance existing debts, including those from the first two phases of the SME Loan Guarantee Scheme. The interest rate will be capped at 7.5%, with rights to optional repayment holidays built into the terms.

Finally, the government is now guaranteeing 80% of the loan amount, up from 50% in previous versions of the scheme. This allows the bank to hold more capital against them, increasing the profits on the loans. The banks say this profit will be passed onto SMEs in the form of lower interest rates, despite troubling signs that a sudden rate rise could be just around the corner.

You need to move fast. There are less than 3 months left to lock it in.

Despite the big changes that came into effect on October 1st, the original end date for the scheme remains unchanged: December 31st, 2021, less than 3 months away.

These might be late-stage changes, but they’re far from a footnote. In fact, lenders are expecting to approve significantly more loans in the next three months than they’ve approved over the scheme’s entire duration so far. This means that SMEs will need to act fast if they want a piece of the action.

Our business advisors are experts when it comes to business financing. If you’re considering applying for the SME Loan Guarantee Scheme, then get in touch with us today. We’ll help you put together your application and workshop with you on how to best take advantage of this amazing opportunity.

The information in this article is of a general nature. It does not take your specific needs or circumstances into consideration. You should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

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