SMEs can now borrow up to $5 million in expanded government loan scheme

The federal government has expanded a loan scheme for small and medium businesses, offering loans of up to $5 million as part of its post-JobKeeper support package.

The SME recovery loan scheme will build on the SME guarantee scheme established in March last year to provide loans of up to $5 million, with 80% of the loan guaranteed by the government and 20% by participating banks.

Announcing the revised loan scheme today, Treasurer Josh Frydenberg said it will help sectors and regions across the country that are “continuing to do it tough” with “proportionate, timely, scalable and targeted assistance”.

“The expansion and extension of the loans will back businesses that back themselves, and will help businesses who continue to do it tough build a bridge to the other side of the crisis and keep their staff employed,” Frydenberg said in a statement.

What businesses are eligible?

To be eligible for a loan, businesses must have received JobKeeper between January 4 and March 28, and have a turnover of no more than $250 million.

Self employed individuals and non-profit businesses are also eligible.

How will the loans work?

Like the previous SME guarantee scheme, loans will be offered by participating commercial banks.

The government will guarantee will be 80% of the loan amount to help encourage more banks to offer loans to businesses.

Both unsecured and secured lending will be allowed under the scheme.

What can I use the loan for?

Loans can be used to support investment, refinance pre-existing debt, including debt from the previous SME guarantee scheme.

Loans can also be used to purchase commercial property and to acquire another business.

However, they cannot be used to buy residential property, financial products or lease, rent, hire or purchase existing assets that are more than half-way into their effective life.

How much can I borrow?

Businesses can access up to $5 million in total.

How long is the loan term?

Loans will be offered for terms of up to 10 years, with the option of a repayment holiday period.

Can I take repayment holiday?

Lenders can offer borrowers a repayment holiday of up to 24 months.

What is the interest rate?

The interest rate on loans will be determined by the lenders with a cap of about 7.5%.

The government has said there will be some flexibility for interest rates on variable rate loans to rise, if market interest rates increase in the future.

Banks must disclose the effective interest rate, including whether it is variable or fixed, to the borrower when the loan is agreed to.

During repayment holidays, interest will continue to accrue and businesses will have to pay accrued interest back once repayments restart.

What if I am unable to repay the loan?

Borrowers are responsible for all loans repayments under the scheme.

If a business is unable to meet repayments, banks will follow standard default processes.

Will borrowers be able to make complaints to the Australian Financial Complaints Authority (AFCA)?

Businesses borrowing under the scheme will still be able to make complaints to AFCA, however AFCA will not take into account decisions to lend under the scheme or the amount of a loan.

AFCA will receive complaints about issues of hardship or enforcement.