80% Business Loan Guarantee from Federal Government (Capped Maximum 7.5% Interest Rate) @ SME Recovery Loan Scheme

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Dinjay on 09/09/2021 - 09:23 treasury.gov.au (221 clicks)
Last edited 09/09/2021 - 12:40 by 2 other users

This is a scheme by the Federal Governments for qualifying small and medium businesses (SME) affected by COVID or the floods. The Government will guarantee 80% of the loan amount to the lenders. Summary below - see here for full information.

Eligible businesses
The Scheme is only open to firms with turnover of up to $250 million that either received JobKeeper payments in the March quarter of 2021 or have been affected by the floods eligible LGAs in March 2021.

Both self‑employed individuals and non-profit businesses are eligible. Businesses that have accessed loans in Phase 1 and Phase 2 can also apply for loans under the scheme.

Application Period
Loans will be made available from 1 April 2021 until 31 December 2021.

Eligible loan uses and products
Lenders can offer any product suitable to the borrower, with the exception of credit cards, charge cards, debit cards or business cards. Loans issued under the Scheme may take any other form of credit, provided the Scheme’s eligibility criteria are met.

Loans issued under the Scheme can be used to refinance existing loans or for a broad range of businesses purposes (including to support investment) but cannot be 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.

Interest rates and fees
The interest rate on loans will be determined by lenders, but will be capped at around 7.5 per cent, 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.

Participating Lenders (googled links - use with care)
* ANZ
* Bank of Queensland
* Commonwealth Bank of Australia
* Fifo Capital Australia (link to scheme not found)
* Get Capital (link to scheme not found)
* Judo Bank
* Liberty Finance
* Moneytech Finance
* National Australia Bank
* Queensland Country Bank
* Regional Australia Bank
* Social Enterprise Finance Australia
* South West Credit Union Co-operative (link to scheme not found)
* Suncorp-Metway
* The Mutual Bank (link to scheme not found)
* TrailBlazer Finance
* Unity Bank
* Webster Dolilta Finance Ltd (link to scheme not found)
* Westpac

Related Stores

The Treasury, Australian Government

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  db2k on 09/09/2021 - 09:27

  +1

  @OP would it be useful to update so interest rates and fees are mentioned in the body description?

  The interest rate on loans will be determined by lenders, but will be capped at around 7.5 per cent, 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.

  • 

    Dinjay on 09/09/2021 - 09:32

    Ok - I added that section to the body now.

    That 7.5% is the cap. The rates offered by each lender differs and from the sample I've seen, they're all a fair bit below that cap.

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  rifter on 09/09/2021 - 09:42

  +3

  And the rorts begin.

  • 

    Dinjay on 09/09/2021 - 09:48

    Unlike Jobkeeper, this is a fairly good design as far as I can tell. The only risk to the gov is if the borrower goes bankrupt - otherwise there is no gov cost.

    The lender gives out and manages the loan, and are liable for 20% of the loan if the borrower goes bankrupt. So while the gov guarantee reduces the lender's risk, the lender still has a strong interest in making sure the borrower can pay it back.

    • 

      t25 on 09/09/2021 - 09:57

      +1

      But if the borrower is a corporation is there any real risk to the directors/owners? What's stopping the business from going bust and pocketing the cash along the way to start up a new business.

      • 

        Dinjay on 09/09/2021 - 10:03

        But if the borrower is a corporation is there any real risk to the directors/owners?

        Depends on what you mean by "real" risk. Directors have legal responsibilities:
        There are penalties and consequences – including civil penalties, compensation proceedings and criminal charges – for directors who fail to comply with their obligations under Australian law.

        What's stopping the business from going bust and pocketing the cash along the way to start up a new business.

        In addition to the director responsibilities, the bank lending criteria also apply. Believe it or not, banks tend to dislike loosing any money and 20% of loan is a lot of money.

      • 

        Dinjay on 09/09/2021 - 10:08

        Just to be clear - I am not saying that there are no negatives to the taxpayer for this scheme and there is no chance of rorts - it's not all ice cream and cornflakes.

        I am just saying that, given the dire economic/SME situation due to the pandemic (+floods), the upsides seem to clearly outweigh the downsides.

      • 

        Typical16-bitEnjoyer on 09/09/2021 - 11:42

        +1

        Nothing is stopping them. Phoenixing has always been an issue and Phoenixing has been absolutely rife the past 12 months. ATO and ASIC can't keep on top of it.

        There will be heaps that take up a loan, use the funds and wind the company up.

        • 

          Dinjay on 09/09/2021 - 13:37

          @Typical16-bitEnjoyer: Phoenixing is illegal.

          If nothing can stop someone breaking the law in this loan scenario, then surely the same could be said of pretty much any law - from jaywalking to murder? But we don't usually stop doing things just because some people will break the law - all we can do is hope that the law eventually catches up with those breaking the law.

          Something like 200,000 businesses received Jobkeeper and are eligible for this loan scheme. Some of those business owners might break the law, but presumably the vast majority are honest people. I would be very surprised and saddened if the honest proportion is any less than 95%.

          • 

            Typical16-bitEnjoyer on 11/09/2021 - 17:49

            @Dinjay: Duh, of course it's illegal. Only the absolute worst culprits who didn't cover their tracks get caught. It was occurring all the time in the past, but COVID has made insolvencies go through the absolute roof.

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  DSOTM on 09/09/2021 - 09:46

  Interesting. Could do with a new car for the business. Anyone know what interest rate the banks are generally charging for a 40K to 50K car loan these days? Less than this 7.5% cap?

  • 

    Dinjay on 09/09/2021 - 09:53

    +2

    Different banks have different rates based on various factors.

    For instance, the Westpac website says variable rates from 2.58% p.a. to 4.28% p.a.

    • 

      DSOTM on 09/09/2021 - 10:43

      Cool. Thanks. It's good to have a ballpark.

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  Typical16-bitEnjoyer on 09/09/2021 - 11:46

  This scheme is doomed to fail.

  Banks surely won't accept loans from companies without a personal/director guarantee, and no one in their right mind would provide one in this climate.

  There will be huge amounts of companies sitting on the brink, that will take the money and splash out, then wind up or hand the company over the administrators, and the banks know this.

  • 

    Dinjay on 09/09/2021 - 13:16

    No room for grey areas?

    Yes, I too expect that many businesses are sitting on the brink and will go under regardless of whether they get a loan. Hopefully the banks will do their due diligence and not loan to those companies.

    I'd also expect there are also businesses that are solvent regardless of this loan, but experiencing short-term COVID-related non-fatal cashflow/income limitations that prevent them from retaining staff or scaling up or hiring or pivoting to new opportunities. Giving them a loan will provide a net benefit to the economy at very little cost/risk.

    And there will also be plenty of businesses in the grey areas between the above two scenarios. Presumably, each bank will draw the line through that grey area based on their risk/reward appetite.

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  coolsteps on 09/09/2021 - 12:52

  thanks op seems to be a low rate for a business loan
  could be ok to buy a new plant or vehicle etc
  not sure if buying a commercial property and then renting it out is allowed?

  • 

    Dinjay on 09/09/2021 - 13:07

    I haven't seen anything in the scheme rules that exclude commercial proper for renting, but individual lenders will have their own rules. I've seen lenders offer a lower interest rate under this scheme if the loan is secured by property, so I guess they allow it.

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  Jujovitu on 09/09/2021 - 13:39

  +1

  So the government crushes small business then offers to be a loan shark on 7.5% interest when official rates are 0.1%

  Thats the Libs for you.

  • 

    Dinjay on 09/09/2021 - 13:59

    7.5% is the max any lender can charge.

    Different lenders offer different rates based on various factors (e.g. security) - e.g. Westpac offers variable rates from 2.58% p.a. to 4.28% p.a.

• 

  deals4amar on 09/09/2021 - 16:12

  The Scheme is only open to firms with turnover of up to $250 million —-

  Wonder how many Ozbargainers fall into that category!

  • 

    Dinjay on 10/09/2021 - 05:53

    If any ozbarginers run a business, I'd expect most/all of them to have a turnover of less than $250 million and therefore qualify for this scheme. But that looks like only 10 people :(

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  terroz on 17/10/2021 - 23:06

  Lending rules apply similar to a bank normal lending criteria. I have approached my business bank CBA and wasn't successful due to ABN under a year. Interest rate was decent, less than 3%.

  Anyone else know which lender on the list is more lenient?

  • 

    Dinjay on 18/10/2021 - 12:20

    Welcome to small business - no bank will ever lend you any money :(

    You could try Judo Bank or one of the non-banks in the above list - but don't expect same interest rate as CBA.

    Please post back and share your experiences to benefit others.

    • 

      terroz on 20/10/2021 - 14:34

      Most of the small banks/lenders interest rates are like 6% and above. Easily achievable with any lenders I googled.

      Fail scheme if you ask me.

• 

  harveyworld on 09/11/2021 - 15:36

  I spoke to a Westpac loan advisor about this loan and basically said that if our company borrows a million dollars and we put 200,000k (20%) in a trust account with their name on it then I couldn't see why 'normal' lending rules had to apply for our $800,000 as they were protected anyway.

  Most of us are struggling in one way or another so why treat the lending rules as 'normal'. The advisor couldn't answer me and to be honest was totally unaware of the loan.

  Does anyone know if anyone has successfully claimed this from a bank, as I believe that its nothing more than a tick from the government to say they are doing the right thing by helping businesses whilst the reality is completely different.

  • 

    Dinjay on 10/11/2021 - 04:43

    You're probably right - the scheme is probably more for show than being actually useful.

    Have you tried Judo Bank? They supposedly specialise in lending to small businesses.

    • 

      harveyworld on 10/11/2021 - 19:53

      Spoke to Judo earlier today and disappointingly they refused based on a couple of standard assessment questions.

      I don't think there is any such thing as an Australian bank that believes in innovation and accepts a business based on it's intellectual property.
      It's still all assessed on historical data and information which is so out of date by modern standards.
      I was hoping for something different from Judo bank but the reality was they base their criteria on the same basis as all the other Australian banks. I was really hoping they would ask questions about the business and dig down further to try and understand what we have but alas it was all about how well you have done in the past.

      Any budding entrepreneurs with a potential Facebook, Instagram or Amazon business on the horizon may as well forget Australian banks for business support and look overseas.

      • 

        Dinjay on 11/11/2021 - 18:31

        It sounds like you might be looking for something like startup capital? If so, then a bank probably isn't the right option. Pre-COVID, I have attended a few startup funding info sessions looking for ideas - you might want to try doing the same.