The SME Recovery Loan Scheme opened on Thursday 1st April and will be available for small to medium enterprises (SMEs) across Australia until 31st December 2021. The purpose of the scheme is to support the economic recovery, and to offer continued assistance, to businesses that received JobKeeper and also to organisations that are eligible flood-affected business support measures.
The Treasury believes that the scheme introduced by the federal government aims to boost lenders’ ability to provide cheaper credit, allowing many otherwise viable SMEs to access important additional funding to help them survive the impact covid-19 has had on their business and to recover and prepare for the businesses long term future. The Australian Government aims to work with lenders to make sure that eligible businesses have access to finance, with actions such as offering a guarantee.
The recently introduced scheme expands upon the framework established in the two phases of the original Coronavirus SME Guarantee Scheme, and is only available to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 and also for businesses that are located or operating in eligible flood affected local government areas (LGAs) in March 2021.
The second phase of the existing SME Guarantee Scheme will remain open to eligible borrowers until 30 June 2021, and SMEs with phase 1 or phase 2 loans will be able to apply for loans in SME Recovery Loan Scheme if they meet eligibility criteria. Businesses that access other disaster-related financial assistance will be able to apply for loans under the SME Recovery Loan Scheme, if they meet eligibility criteria.
The interest rate placed on the loans will be determined by lenders, however the interest rate will be capped at around 7.5 percent, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.
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.
Loans issued as a part of the scheme can be used to refinance existing loans or for a broad range of businesses purposes (including to support investment) but are unable tobe used to; purchase of residential property, purchase of financial products lending to an associated entity or lease, rent, hire, hire-purchase existing assets that are more than half way into their effective life.
The scheme is open to SMEs with a turnover of up to $250 million that were recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 or were affected by the floods in eligible LGAs in March 2021. Both self?employed individuals and non-profit businesses are eligible for the scheme. Businesses that have accessed loans in phase 1 and phase 2 are also able to apply for loans.
Participating lenders are offering guaranteed loans on the following terms under the SME Recovery Loan Scheme:
- The Federal Government guarantee will be 80% of the loan amount.
- Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
- Loans can be used for a broad range of business purposes, including to support investment.
- Borrowers can access up to $5 million in total, in addition to the phase 1 and phase 2 loan limits.
- Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme.
- Loans are for terms of up to 10 years, with an optional repayment holiday period.
- 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%, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.
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