Due to the COVID-19 pandemic, many small and medium-scale businesses have been taking a huge hit. To ease the impact of this virus for such companies, the government announced the Coronavirus SME Guarantee Scheme in March 2020 to provide additional funding during the pandemic.
This scheme allowed SMEs access to unsecured working capital loans to manage their disrupted cash flows and business loss due to the coronavirus. The government supported lending of up to $40 billion to SMEs and the government guaranteeing up to $20 billion.
However, only 15,600 business loans worth $1.5 billion have been issued ever since its launch. To further provide the much-needed support to the SMEs, the government has introduced the phase II of the Coronavirus SME Guarantee Scheme on October 1, 2020.
According to the Treasury, Phase II of the Scheme has been “enhanced to support businesses in recovery and to enable continued support for SMEs facing the ongoing impacts of the Coronavirus.”
Previously, the maximum loan size was $250,000 per borrower. In Phase II, the maximum loan size has been quadrupled to $1 million. The repayment of the term has been increased from three years to five years.
SMEs can avail both secure and unsecure loans, excluding the residential property, which means the businesses don’t have to provide their home as the security for the loan. The lenders have the discretion to provide repayment holiday and spread the loan interest throughout the complete loan course.
While the lenders can determine the interest rate of the loans, the Treasury has announced a cap of 10% with a provision for the flexibility of the variable interest rate according to the market conditions.
All the Australian businesses with a turnover of less than $50 million in the previous financial year or expect a turnover of less than $50 million in the current financial year can apply for a loan under this Scheme. This also includes self-employed people and non-profit businesses.
Businesses can apply for this loan from the 1st of October 2020 until 30th June 2021. SMEs that have availed this loan during Phase I of this Scheme can also apply in Phase II. SMEs can also refinance the loan obtained during Phase II between other participating lenders within the 30 June 2021. However, the loan cannot be refinanced for any other purposes.
With the change in terms of the Scheme, it’s expected that more SMEs will take advantage of it. Since the loan limit was capped at $250,000 previously, the amount wasn’t sufficient for many borrowers to compensate for the cash flow.
Also, the three-year repayment duration wasn’t sufficient for those businesses that are hard hit during the coronavirus pandemic. The increase in the period of recovery to five years in Phase II is a welcome addition. The extended period allows businesses to leverage credit and invest in their future.
To improve the economy going further, the revised terms of the Coronavirus SME Guarantee Scheme’s revised terms give hope and encouragement to the SMEs. Those businesses that have suffered through the pandemic can explore new opportunities and stabilize their business with loans obtained through this scheme.
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