Coronavirus (COVID-19) updates from the Australian Government

Information for Lenders

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An Expression of Interest process will be conducted to consider applications from both new and current SME Guarantee Scheme participating lenders, opening 31 March 2021 and closing 20 April 2021. All lenders will need to apply and demonstrate they can meet the new terms. In order to be considered eligible to be a participating lender under the SME Recovery Loan Scheme, at a minimum you should be:

  • An ADI or non-ADI lender with an existing SME lending function in Australia.
  • Able to meet the requirements to set up the facility to report to APRA.
  • Offering an annualised interest rate of 7.5 per cent or less on fixed rate scheme-backed products, and 7.5 per cent or less plus the Bank Bill Swap Bid Rate on variable rate scheme-backed products.
  • Provide for a repayment holiday of 12 months, on appropriate products.
  • Offering borrowers the opportunity to apply for a repayment holiday of up to 24 months, on appropriate products.
  • Providing a detailed breakdown of products or product types you do not consider are appropriate for a repayment holiday.
  • Offer fees on Scheme-backed loans that are consistent with fees for non-Scheme loans, and you do not charge any fees associated with undrawn balances on loans committed.
     

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)

 

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. These restrictions will continue to apply for loans issued under the SME Recovery Loans Scheme.

Under the AFCA Scheme Authorisation (Additional Condition) Amendment 2020, the AFCA Scheme Rules have been 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.

The changes to the AFCA Scheme Rules apply to complaints made from 25 April 2020.

Further information on these changes is available from AFCA.

What is the Government guaranteeing? 

The Government will guarantee 80 per cent of eligible loans issued by participating lenders under the SME Recovery Loan Scheme. The guarantee will apply to both principal and interest.

When can loans be issued under the SME Recovery Loan Scheme?

Loans will be made available from 1 April 2021 until 31 December 2021.

Can lenders that participated in Phases 1 and 2 participate in the SME Recovery Loan Scheme?

An Expression of Interest process is being conducted to consider applications from lenders interested to participate in the SME Recovery Loan Scheme. All lenders (including Phase 2 participating lenders) will need to apply, and demonstrate they can meet the new eligibility criteria. 

Will lenders be charged a fee to participate in the SME Recovery Loan Scheme? 

There are no fees involved in submitting an application or for participating in the Scheme.

How is a borrower defined? Are there any restrictions on the size of the loan products than can be offered?

  1. How is a borrower defined? Are there any restrictions on the size of the loan products than can be offered?

Eligible borrowers:

  • The scheme is only open to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021.
  • Small and medium sized businesses with up to $250 million turnover, including self-employed and non-profits.
  • The business was adversely economically affected by flood and was:
    • Located in a flood-affected Local Government Area; or
    • Operated in a flood-affected Local Government Area
 

Loan size:

  • 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 SME Recovery Loan Scheme?

An eligible loan under the 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; 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% into its existing life.
  • Lenders must disclose the effective interest rate (including 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 in regards to the purpose of the loan.

Are there any restrictions on pricing of loans under the SME Recovery Loan Scheme?

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 loan 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 SME Recovery Loan Scheme? 

  • Both unsecured and secured lending will be permitted under the Scheme.
  • Lenders are permitted to take guarantees.
  • For secured loans, lenders will be permitted to take any security except residential property.

What lending standard are required under the SME Recovery Loan Scheme?  

Lenders should determine lending standards commercially, in accordance with their usual credit assessment processes.

The AFCA Scheme Rules have been amended to limit AFCA’s ability to consider complaints relating to loans made under the SME Guarantee Scheme. These restrictions will continue to apply for loans issued under the SME Recovery Loan Scheme.  

How should loans offered under the SME Recovery Loan Scheme be enforced?

Lenders will have discretion in their recovery and enforcement approach. Lenders will utilise their normal recovery procedures, including discretion as to whether to take enforcement action. Enforcement is not a precondition to making claims on the guarantee. The Government will not issue guidance in relation to enforcement. Sale to a third party debt collector is not permitted.

When can losses be claimed under the Government guarantee? 

Lenders can claim losses at the earlier of impairment or write off, in line with lenders’ standard process.