Lenders will be required to regularly report to APRA on information related to:
- their portfolio of loans guaranteed under the Scheme; and
- individual loans written (at origination)
Why have the Scheme Rules been amended?
On 13 December 2021, in recognition of the continued economic impacts of the Coronavirus Pandemic, the Government announced that the SME Recovery Loan Scheme would be expanded (under varied terms) to provide support to SMEs adversely economically affected by the Coronavirus Pandemic.
To reflect the change in policy, the Commonwealth amended the Scheme Rules and executed an Amending Deed (SME Recovery Loan Scheme Guarantee). The amended Scheme Documents will come into effect on the 2022 Scheme Expansion Date (1 January 2022).
The following key changes have been made to the Scheme Rules:
- Rule 1.3: The Guaranteed 2022 Percentage is 50 per cent. This is to reflect the reduction in Government guarantee from 80 per cent to 50 per cent.
- Rule 1.3: The 2022 Scheme Expansion Date (meaning the date the Scheme expansion becomes effective) is 1 January 2022.
- Rule 3.1(d)(iii): The alternative eligibility criterion for flood-affected SMEs has been removed.
- Rule 3.2(f)(ii): Loans must be approved and unconditional (subject to the exceptions in this Rule concerning standard market practice conditions precedent) from 1 January 2022 to 30 June 2022 (inclusive).
Following the 2022 Scheme expansion, is it still possible to write a Recent Flood Scheme-Backed Loan?
No, Flood Affected eligibility has been removed. However, it is still possible to write a Recent Flood Scheme-Backed Loan under the existing 2021 Scheme, which closes for new loans on 31 December 2021.
Following the 2022 Scheme expansion, is it still possible to write a Scheme-Backed Loan under the Job Keeper eligibility?
From the 2022 Scheme Expansion Date, a borrower would need to demonstrate they meet the eligibility criterion for a COVID Scheme-Backed Loan instead.
When do the new Scheme Rules become effective?
The amended Scheme Rules are effective from 1 January 2022, ten business days after notification of the amended documentation.
As previously announced, the loan writing period for the 2022 Scheme expansion closes on 30 June 2022.
Will the features of the 2022 Scheme expansion change with the new eligibility?
No. Apart from the changes listed above, the 2022 Scheme expansion will include the same generous features as previously announced for the expanded eligibility, including:
- Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
- Borrowers can access up to $5 million in total, in addition to the Phase 1 and Phase 2 loan limits.
- Loans are for terms of up to 10 years, with an optional repayment holiday period.
- 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 (see ‘Can loans be used to refinance the pre-existing debt of an eligible borrower?’ below).
- 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 over time.
Can loans be used to refinance the pre-existing debt of an eligible borrower?
Provided a borrower satisfies the requirements of Rule 8.4 of the amended Scheme Rules (including the ‘Eligible Borrower’ and ‘Eligible Loan’ requirements at the relevant time), they can refinance their pre-existing debt, including a debt accrued in respect of a Recent Flood Scheme-Backed Loan.
However, if a borrower under a Recent Flood Scheme-Backed Loan is in arrears because they have arranged for a repayment deferral under their loan that extends beyond 31 December 2021 (see Rule 8.4(c) of the amended Scheme Rules), that borrower will not be eligible to refinance their existing debt after the 2022 Scheme Expansion Date.
With the 2022 Scheme expansion, do existing participating lenders require a new Participating Lender Agreement to issue loans?
No, existing SMERLS participating lenders do not require a new Participating Lender Agreement to issue loans.
Existing participating lenders can issue loans to borrowers under the existing 2021 Scheme or the 2022 Scheme expansion, provided timing requirements and all other eligibility criteria are met (see ‘What are the relevant timing requirements for a loan to be considered a 2021 or 2022 Scheme-backed loan?’ below).
What are the relevant timing requirements for a loan to be considered a 2021 or 2022 Scheme-backed loan?
Whether a loan is considered a 2021 or 2022 Scheme-backed loan depends upon the date on which the loan is approved and unconditional.
Under the existing 2021 Scheme, loans must be “approved and unconditional (subject only to any standard market practice conditions precedent to utilisation)” by 31 December 2021 (see Rule 3.2(f)).
Under the 2022 Scheme expansion, the relevant loan must be approved and unconditional during the period 1 January 2022 to 30 June 2022 (inclusive and also subject to the same conditions precedent above).
For example, an existing participating lender unconditionally approves a loan for a SME on 20 December 2021. The loan agreement is not signed by both parties until 10 January 2022. Provided that the loan and SME meet all other eligibility criteria, the loan attracts the 80 per cent guarantee, under the existing 2021 Scheme. However, if the loan was approved and unconditional after 31 December 2021, it would attract the 50 per cent guarantee under the 2022 Scheme expansion.
How do lenders participate in the SME Recovery Loan Scheme?
An Expressions of Interest process has been conducted to participate in the expanded SME Recovery Loan Scheme. If you are interested in participating in the SME Recovery Loan Scheme following the announcement that the Scheme would be expanded into 2022, please contact the Treasury at SMElenderguarantee@treasury.gov.au for further information and application forms. Applications are open until 28 February 2022.
Considerations in EOI assessment
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 on questions in their application if requested, for instance:
- the lender’s commitment to strong professional standards and the overall policy objective of the Scheme;
- the lender's expertise in extending SME credit on an unsecured and secured basis;
- the lender's organisational capacity to quickly extend SME credit (including current business portfolio size and market share);
- 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 participation to non-bank lenders or other entities with limited pre existing SME lending experience.
The Commonwealth will make decisions at its discretion, taking into account:
- the factors referenced above; and,
- the benefit of promoting competition by mid-sized and smaller banks, and non-bank lenders.
The Commonwealth will consult with APRA, AFCA, ASIC and AOFM in relation to all expressions of interest received.
Are there any restrictions on the size of the loan products than can be offered?
There is a maximum loan limit of $5 million per borrower under the SME Recovery Loan Scheme, in addition to the Phase 1 and Phase 2 loan limits. No minimum loan size.
Lenders have discretion over the size of the loan within the limit.
The maximum loan limit will apply per ABN.
Businesses can take out multiple guaranteed loans with either the same lender or multiple lenders, provided the total amount does not exceed the maximum loan limit.
Are there any restrictions on the types of loan products that can be offered under the 2022 Scheme expansion?
An eligible loan under the expanded 2022 Scheme can take any form of credit (including overdrafts, working capital and revolving facilities, leases or hire-purchase arrangements), with the exception of a credit, debit, charge card or business card facility (however described).
Loans must be used for business purposes only (including to support investment), with limited exceptions.
- Loans cannot be used for the purchase of residential real property, the purchase of financial products or lending to an associated entity.
- Loans can be used to lease, hire or hire purchase (however described) an existing asset that is less than or equal to 50 per cent into its existing life.
- Lenders must disclose the effective interest rate (whether variable or fixed) to the borrower at the loan agreement date. For variable rate loans, the lender must disclose the relevant margin and underlying base rate where applicable.
- Loans can be used to purchase non-residential real property (such as commercial property) or for the acquisition of another business.
- Lenders will be able to rely on a declaration from the borrower regarding the purpose of the loan.
Are there any restrictions on pricing of loans under the 2022 Scheme expansion?
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 over time.
- Variable rate loans will be subject to a maximum interest rate of 7.5 per cent per annum over the BBSY rate.
- Fixed rate loans will be subject to a maximum interest rate of 7.5 per cent per annum.
Lenders must disclose the effective loan interest rate to the borrower at the time of the loan agreement.
Fees will be determined by lenders but can only be charged to the extent they are consistent with fees on similar loans outside the Scheme. No fees are permitted to be applied to undrawn facilities.
What forms of security are permitted under the 2022 Scheme expansion?
- Unsecured and secured lending will be permitted under the Scheme.
- Lenders are permitted to take guarantees.
- Lenders will be permitted to take any security except residential property for secured loans.
What lending standards are required under the 2022 Scheme expansion?
Lenders should determine lending standards commercially, in accordance with their usual credit assessment processes.
How should loans offered under the 2022 Scheme expansion be enforced?
Lenders will have discretion in their recovery and enforcement approach. Lenders will utilise their normal recovery procedures, including deciding whether to take enforcement action. Enforcement is not a precondition to making claims on the Government guarantee. Sale to a third-party debt collector is not permitted.
When can losses be claimed under the Government guarantee?
Lenders can claim losses under the Government guarantee after a Scheme-Backed Loan is impaired or written-off (whichever comes first), in line with lenders’ lending policies.
How does a business satisfy the 2022 Scheme eligibility criteria that a borrower must be adversely economically affected by the Coronavirus pandemic?
There are many different ways a business may be adversely economically affected by the Coronavirus Pandemic. This includes, but is not limited to, a decline in business income. There should be an impact on the borrower, as a result of the Coronavirus pandemic, as at the loan application date.
As part of the loan application process, a Participating Lender may request a borrower attest that they satisfy this eligibility criteria. This attestation may form part of a declaration (commonly known as the SME Declaration).
What is the Government guaranteeing?
Under the existing 2021 Scheme, the Government will guarantee 80 per cent of eligible loans issued by participating lenders until 31 December 2021. However, under the 2022 Scheme expansion, the Government will guarantee 50 per cent of eligible loans issued by participating lenders until 30 June 2022. Each guarantee applies to both principal and interest. See ‘What are the relevant timing requirements for a loan to be considered a 2021 or 2022 Scheme-backed loan?’ for further information.
How is a borrower defined under the 2022 Scheme expansion?
The 2022 scheme expansion is open to small and medium sized businesses with up to $250 million turnover, including self-employed and non-profits. So far, the Scheme has been open to eligible SMEs that were:
- the recipient of the JobKeeper payment between 4 January 2021 and 28 March 2021;
Note: that a JobKeeper Scheme-Backed Loan can only be approved under this eligibility prior to the Scheme Expansion date (1 October 2021).
- affected by the floods in eligible Local Government Areas in March 2021
Note: a Recent Flood Scheme-Backed Loan can only be approved under this eligibility prior to the Scheme Extension date (31 December 2021); or
- adversely economically affected by COVID‑19. Note: a Covid Scheme-Backed Loan can be approved under this eligibility from the Scheme Expansion Date (1 October 2021).
How will the 2022 Scheme expansion help businesses?
The 2022 SME Recovery Loan Scheme expansion is providing additional support to small and medium sized businesses that continue to deal with the economic impacts of the coronavirus crisis. It will encourage more banks to support small businesses and demonstrates the Government’s commitment to back those businesses that are prepared to back themselves.
The 2022 SME Recovery Loan Scheme expansion builds on earlier loan schemes introduced during COVID-19, under which around 77,000 loans totalling around $6.5 billion were written.
Are lenders required to participate in the 2022 Scheme expansion?
No. Lenders are not required to participate in the expanded Scheme, see Clause 3.1(b) of the Participating Lender Agreement.
For more information about making a claim under Phases 1 and 2 of the SME Guarantee Scheme, the Show Starter Loan Scheme or the SME Recovery Loan Scheme please contact the Business Grants Hubs on 13 28 46 or via email firstname.lastname@example.org.