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How to apply for Phase 2 of the Coronavirus SME Guarantee Scheme

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Phase 2 of the Coronavirus SME Guarantee Scheme commenced on the 1 October 2020 and includes a range of new measures to support businesses applying for loans. We examine what the Phase 2 changes mean for your business and how you can apply.

What is Phase 2 of the SME Guarantee Scheme?

The Government has extended the $40 billion SME Guarantee Scheme from 1 October 2020 to 30 June 2021.

All active Australian businesses, including self-employed individuals and non-profit business, with an annual revenue of less than $50 million are eligible to apply. Under the Scheme, the Government will guarantee 50 per cent of new loans issued by participating lenders.

Phase 2 also includes improved loan terms.

There is a 10 per cent interest cap and the size of eligible loans guaranteed under the Scheme has increased from $250,000 under Phase 1 to $1 million under Phase 2. Both secured and unsecured lending are allowed.

Businesses owners who have loans in Phase 1 are eligible to apply for new loans for up to $1 million in Phase 2 or refinance Phase 1 loans into Phase 2 loans.

“The Coronavirus SME Guarantee Scheme is supporting small and medium sized businesses (SMEs) to access cheaper funding so they can adapt and innovate during the coronavirus crisis,” said a Treasury spokesperson.

According to data provided by the Treasury, the SME Guarantee Scheme has already assisted “almost 20,000 businesses access credit at an average interest rate of 5.5 per cent.”

ABS data shows that there are more than 2.3 million SMEs in Australia, of which 93 per cent are small business.

Where can I apply for a loan under this Scheme?

According to the latest data provided on the Treasury’s website, there are nine approved participating financial lenders in Phase 2 so far.

The approved lenders are:

  • ANZ
  • Commonwealth Bank of Australia
  • Community First Credit Union Limited
  • Credabl
  • Finstro Securities Pty Ltd
  • Get Capital
  • Metro Finance Pty Ltd
  • National Australia Bank Limited
  • Westpac Banking Corporation

Loans provided under the SME Guarantee Scheme will have different names from different lenders and the interest rate they charge might vary.  

For instance, Commonwealth Bank of Australia (CBA) provides the guaranteed loan under the “BetterBusiness” loan and National Australia Bank calls it the “Business Support” loan.

“This next phase of the SME Guarantee Scheme will allow some businesses to continue to trade through ongoing challenges, and others to make important investment decisions that will set them up for the future,” said a CBA spokesperson.

Is demand for funding shrinking?

The RBA suggested that weak demand for credit from SMEs is the main reason for the low take-up of Phase 1 of the SME Guarantee Scheme.

“Take-up of the government’s $40 billion SME loan guarantee scheme has remained low. Around $1.6 billion of loan commitments have been made under the scheme, equivalent to around ½ per cent of SME lending outstanding. The low take-up is consistent with a lack of demand for credit in general,” wrote the RBA in its August 2020 statement on monetary policy.

The RBA also wrote that “some banks have indicated in liaison that they are more cautious about lending to new customers and to sectors significantly affected by the pandemic, such as smaller retailers, tourism and commercial property.”

According to the August 2020 Sensis Business Outlook & Confidence Survey for SMEs, 26 per cent of surveyed business owners had been rejected for finance in the previous three months.

The survey also showed a decrease in applications for finances from 17 per cent in December 2019 to 13 per cent in August 2020.

Sensis CEO John Allan expressed concerns for the hospitality and accommodation sectors, which have been significantly affected by coronavirus.

“43 per cent said it was more difficult to get finance. That was well ahead of any other sector with the industry average at 36 per cent. One in three said they were knocked back for finance compared to the industry average of 26 per cent.”

This matches the RBA’s October 2020 Financial Stability Review paper.

“At least 10–15 per cent of small businesses in the hardest-hit industries still do not have enough cash on hand to meet their monthly expenses,” wrote the RBA.

Shengyin Li
Shengyin Li is an intern journalist at Dynamic Business with a background in the corporate accounting and finance. She is interested in renewable energy, geopolitics and Asian economy