With Omicron creating the latest round of challenges for some small and medium sized businesses, the Federal Government’s extension to the SME Recovery Loan Scheme for COVID-19 impacted businesses is timely.
Phase three of the scheme was due to expire on 31 December 2021, but under the proposed extension announced by Federal Treasurer Josh Frydenberg late last year, loans will be available from 1 January 2022 until 30 June 2022 with a reduced Government guarantee from 80% to 50%.
Around 80,000 loans worth approximately $7.3 billion have been written since the scheme launched in March 2020.
Who is eligible?
The Scheme is open to eligible SMEs that were recipients of a JobKeeper payment between 4 January 2021 and 28 March 2021.
The scheme is also open to SMEs affected by the floods in eligible Local Government Areas in March 2021 or those adversely economically affected by COVID‑19.
What does the scheme provide?
As with the existing scheme, SMEs dealing with the economic impacts of COVID-19 who have a turnover of less than $250 million can access loans of up to $5 million over a term of up to 10 years.
Other key features of the SME Recovery Loan Scheme include:
- Lenders can 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.
- Loans may be used to refinance any pre-existing debt of an eligible borrower.
- Loans can be either unsecured or secured.
The interest rates attached to the recovery loans are determined by lenders, depending on the available security, loan term and whether repayment holidays apply. At the time of publishing, ANZ was offering a secured loan rate starting at 2.49% pa or 4.24% pa unsecured (Source: ANZ).
For a secured loan with ANZ, you’ll need to provide security acceptable to the bank, and meet a multitude of requirements, including minimum security coverage and suitable location.
Also, whether you decide to go to a Big Four Bank such as ANZ or Westpac or a specialist lender such as TrailBlazer Finance or Judo Bank, residential property can’t be used as security under the terms of the Australian Government SME Recovery Loan Scheme.
Looking to purchase a Commercial Property, this is how it can be done.
If your business is eligible for the scheme, you can look at purchasing 100% of a commercial property where the SME scheme will guarantee 50% of the loan, rather than additional cash/property equity required, and the bank will secure the remaining 50% loan portion. So for example, the business buys a warehouse for say $900,000, the loan security will be the warehouse and the guarantee. Loan servicing will be based on the full $900,000 loan which the business can borrow. Stamp Duty can also be added should the guarantee and the banks loan valuation ratio cover the full loan amount.
The complete list of approved participating lenders can be viewed on The Treasury website. Better still, to find a suitable lender faster or to discuss how the SME Recovery Loan Scheme can help your business get a jump on 2022, call commercial lending specialist AAP Finance today on 1300 141 453, and we will do the rest.