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).
Under the Scheme, the Government is guaranteeing 50 per cent of new loans issued by eligible lenders to SMEs. The Scheme has enhanced lenders’ willingness and ability to provide credit, supporting many otherwise viable SMEs to access vital additional funding to get through the impact of Coronavirus.
As the economy continues to open up, the Government will extend the Scheme to help businesses recover. The extended Scheme will continue to support lenders’ ability to provide credit and ensure that SMEs benefit through lower interest rates.
The initial phase of the Scheme remains available for new loans made by participating lenders until 30 September 2020. The second phase of the Scheme will start on 1 October 2020 and will be available for loans made until 30 June 2021.
Expressions of interest (EOIs) will be sought from lenders who wish to participate in the second phase of the Scheme. Lenders are required to submit an EOI web form on the Treasury portal. EOIs will be open to interested lenders on Wednesday 16 September 2020, until Friday 16 October 2020.
The Government’s $250 million COVID-19 Creative Economy Support Package includes a $90 million Show Starter Loans Scheme. These loans will be delivered as part of the Coronavirus SME Guarantee Scheme, with the Government guaranteeing 100 per cent of loan amounts. This will support concessional loans to assist creative economy businesses to fund new productions and events, to be delivered through commercial lenders and supported by terms and conditions tailored to the arts and entertainment sector. Further information on the Show Starter Loans and the COVID-19 Creative Economy Support Package is available from the Office for the Arts.
Information for small and medium businesses
The Coronavirus SME Guarantee Scheme will provide small and medium sized business with timely access to working capital to help them get through the impact of the Coronavirus.
Eligible lenders are currently offering guaranteed loans up to 30 September 2020 on the following terms:
- Available to SMEs, including sole traders and not-for-profits, with a turnover of up to $50 million.
- Maximum total size of loans of $250,000 per borrower.
- Loans will be for up to three years, with an initial six month repayment holiday.
- Unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.
From 1 October 2020, eligible lenders will be able to offer loans during the next phase on the same terms as the current Scheme with the following enhancements:
- Loans can be used for a broader range of business purposes, including to support investment in a period of economic recovery.
- The maximum loan size will be increased to $1 million per borrower.
- Loans can be up to 5 years rather than 3 years and whether there will be a six month repayment holiday will be at the discretion of the lender.
- A loan can be either unsecured or secured (excluding commercial or residential property).
Loans will continue to be subject to lenders’ credit assessment processes, with the expectation that lenders will look through the cycle to sensibly take into account the uncertainty of the current economic conditions. The decision on whether to extend credit, and management of the loan, will remain with the lender.
As part of the loan products available, the Government is encouraging lenders to provide facilities to SMEs that only have to be drawn if needed by the SME. This will mean that the SME would only incur interest on the amount they draw down. If they do not draw down any funds from the facility, no interest will be charged, but they will retain the flexibility to draw down funds should the need arise.
SMEs interested in the Coronavirus SME Guarantee Scheme should approach their financial institution for more information.
The Treasurer has varied the authorisation conditions for the Australian Financial Complaints Authority (AFCA) scheme to limit the matters that AFCA can consider in relation to certain decisions made by lenders under the Coronavirus SME Guarantee Scheme.
Under the AFCA Scheme Authorisation (Additional Condition) Amendment 2020, the AFCA Scheme Rules will be amended to limit AFCA’s ability to consider decisions made by the lender about whether to provide a loan (and the amount of the loan) under the Coronavirus SME Guarantee Scheme and ensure that when making assessments or determinations about a complaint, AFCA gives consideration to the impact of the coronavirus on the economy and the intent and requirements of the Scheme.
The amendments to AFCA’s authorisation conditions also apply to decisions made by lenders (all lenders and not only those lenders that are participating lenders under the Scheme) to approve repayment deferrals for businesses in response to the coronavirus crisis. The amendments exclude from AFCA’s remit complaints in relation to decisions by lenders to offer repayment deferrals to businesses impacted by the coronavirus, and any consequential change to the amounts payable under the loan or the duration of the loan.
AFCA will amend its Scheme Rules to give effect to this change and provide further guidance for businesses and lenders. The changes to the rules will apply for complaints made after 25 April 2020.
View the list of participating lenders.
Information for participating lenders
Due to high demand, the expression of interest (EOI) process for the initial phase of the Coronavirus SME Guarantee Scheme is now closed.
The Government will work to finalise the details of the second phase in coming weeks. Expressions of interest will be sought from lenders who wish to participate in the second phase of the Scheme after details of the Scheme’s arrangements have been finalised and published.
- Legislative Rules
- Treasurer’s Delegation
- Scheme Rules - amended Scheme Rules came into effect (in conjunction with the Scheme Guarantee Amending Deed) on 8 July 2020
- Deed of Guarantee - the Scheme Guarantee Amending Deed came into effect (in conjunction with amended Scheme Rules) on 8 July 2020
- Reporting Standard
- Treasurer Media Release - Supporting up to $40 billion of lending to SME businesses [9 April 2020]
Allocation principles for the Coronavirus SME Guarantee Scheme
The Commonwealth will initially allocate the majority of the total $40 billion guaranteed loan allocation following an expression of interest process.
The Commonwealth may allocate the guaranteed loan allocation on the basis that some or all of the allocation must be utilised, or expected to the utilised, by a specified date.
For example, if a large lender were to seek a $8 billion allocation, the Commonwealth may provide an allocation to a lender of:
- $6 billion on an unconditional basis; plus
- $2 billion on a conditional basis, to be available only if the unconditional component is utilised, or expected to utilised, over the six month period.
The Commonwealth will in its discretion re-allocate unused conditional allocation amounts as required.
Lenders should provide information to Treasury which they consider appropriate to support their application.
Treasury may request further information from lenders to support their application. Lenders should be in a position to provide additional information if requested, for instance:
- the lender's expertise extending SME credit on an unsecured and secured basis;
- the lender's organisational capacity to quickly extend SME credit (using current business portfolio size and market share as a proxies);
- the implications of lender’s proposed allocation in terms of percentage and absolute growth in their business lending portfolio;
- the lender’s financial strength and the robustness of the lender’s credit risk management framework; and
- for mid-sized and smaller banks, and non-bank lenders, the lender’s ability to meet underserviced regional areas or other specific needs.
Non-bank lenders may submit expressions of interest. However, such applications will be subject to additional scrutiny compared to bank lenders, which are licenced and supervised by the Australian Prudential Regulation Authority (APRA).
The Commonwealth is unlikely to grant an allocation to non-bank lenders or other entities with limited pre-existing SME lending experience.
The Commonwealth will make allocation decisions at its discretion, taking into account:
- the factors referenced above;
- the total quantum of all lenders' requested allocation at that point in time;
- the benefit of promoting competition by mid-sized and smaller banks, and non-bank lenders.
The Commonwealth will consult with APRA in relation to expressions of interest received from ADIs.