Changes to the SME Recovery Loan Scheme and what it means for businesses

In mid-December, the Federal government extended the SME Recovery Loan Scheme for a further six months to 30 June 2022. Previously due to expire on 31 December, the scheme had provided support to SME businesses suffering in the wake of lockdowns and other restrictions arising out of the pandemic.

What does the loan scheme offer SMEs?
The extended scheme now provides SMEs access to government guarantee assistance to obtain loans of up to $5 million for a maximum of ten years.

Who’s Eligible for a Loan Under the Coronavirus SME Recovery Loan Scheme?
All active SME’s with a turnover of less than $250 million in the previous financial year, or expected turnover of less than $250 million in the current financial year are eligible to apply, including individuals who are self-employed and not-for-profit businesses.

What are the key features of the new SME Recovery Loan Scheme?
• Australian government will guarantee 50% of the loan amount
• Repayment can begin up to 24 months after loan was issued
• The SME Recovery Loan Scheme can be used to refinance existing debt
• Loan term up to 10 years with up to $5m per borrower
• Interest rate capped at 7.5% per annum

Important facts relating the SME Recovery Loan Scheme
It’s important to note that the government is not providing these loans. Instead, the Federal Government are providing a guarantee of 50% of the loan amount in favour of certain accredited commercial banks approving loans for qualifying businesses.

The participating commercial banks will:
– determine the interest rate and other loan conditions.
– be required to make their own assessment as to the creditworthiness of individual applicants before approving any such loans.

This approval process gives rise to certain complexities around the loan program. For example, unlike other government assistance such as Jobkeeper, qualifying applicants don’t have an automatic right to a loan. Instead, the banks will be required to carry out their own due diligence concerning the individual applicant.

What can and can’t the loan scheme be used for?
Loans under the scheme can be used to support current and upcoming cash flow requirements as well as business expansion. The only requirement is that loans must be utilised for business purposes only. The borrower cannot use the funds under the scheme to:

• Purchase residential property
• Purchase financial products
• Borrow to lend to an associated entity
• Lease, rent, hire or hire purchase existing assets that are more than halfway into their effective life.

What assistance is available for Recovery Loan Scheme submissions?
Banks have a duty of care to ensure they don’t place either the loan applicant, or the government as guarantor in a position where the business might struggle to meet its commitment under a loan. In this regard, applicants may require the assistance of professional advisors such as Morrows to help prepare projections and forecasts to accompany applications. Morrows can also help prepare the submission of loan applications to accredited commercial banks.

Deadline is approaching, next steps?
The extended scheme is set to expire 30 June 2022. Applications will need to be in prior to that date. Please contact your Morrows advisor for further information and/or referral to Morrows Lending Services for assistance with your application.