Third time's a charm for Frydenberg's SME Recovery Loan Scheme

author-avatar By on September 28, 2021
Third time's a charm for Frydenberg's SME Recovery Loan Scheme

This Friday, the third round of the SME Recovery Loan Scheme will take effect, providing billions in government-backed funding for small businesses.

The revamped Scheme was announced back in August, with the eligibility criteria a little less onerous than in previous renditions.

Under the revision, the government has removed the requirement for small businesses to have received JobKeeper during the March 2021 quarter, or to have a been a flood-affected business.

Businesses with turnover less than $250 million will be able to access loans up to $5 million over a term up to 10 years, either secured or unsecured.

Lenders can offer borrowers up to a two-year repayment holiday, and loans can be used to refinance other debt.

In total there are 18 participating lenders, including the major banks, with the full list below.

Joseph Healy, CEO of Judo Bank - one of the Scheme participants - welcomed the expansion.

"The decision to expand this scheme to businesses impacted by the pandemic is welcomed by Judo and by the SME business sector, as it will enable eligible businesses to access vital credit, recover, and invest for the future," Mr Healy said.

SMEs slow to draw despite raft of funding measures

In 2020 the government earmarked $40 billion for the Scheme, yet so far only $6.2 billion in loans to 77,500 businesses have been approved.

However, JobKeeper ran concurrently in 2020, which potentially stemmed the need for much funding.

A similar trend was seen in the Reserve Bank's Term Funding Facility (TFF), which provided billions in low-cost funding to businesses, and showed businesses were initially gun-shy in accessing funds provisioned for them.

"Overall business lending was little changed, with lending by a number of banks declining. Econometric estimates by Bank staff suggest there was little observable effect from the larger incentive for lending to SMEs compared with lending to large business," an RBA assessment of the TFF said.

"However, it is difficult to control for other important factors that influenced the demand for business credit, such as the fact that SMEs were disproportionately in industries that were more severely affected by the pandemic, adversely affecting both the supply of and demand for credit.

"Also, SMEs received sizeable government support, via initiatives such as JobKeeper, which reduced the need for credit."

The RBA's assessment also showed since the end of February 2020, interest rates on variable loans to SMEs and large businesses had declined by 95 basis points.

Fixed rates had decreased by between 60 and 80 basis points, on average.

Judo's 2021 SME Insights Report from February, which surveyed 1,753 SMEs, found 39.9% of businesses planned to use business loans for COVID provisions, including bridging the gap between qualifying for JobKeeper.

In total, small businesses had a total gulf in required funding of $94.3 billion in 2020, up $4.6 billion from 2019.

About half of businesses surveyed had sought funding in the past 12 months, for an average sum of $1.2 million.

Mr Healy also said one in four surveyed businesses had been knocked back from accessing new funding.

"Despite strong demand, the fact that one in four SMEs were knocked back from accessing new funding is incredibly disappointing given the huge amount of support and stimulus made available to lenders by Canberra," he said.

SME Recovery Loan Scheme Participating Lenders

  1. ANZ
  2. Commonwealth Bank of Australia
  3. National Australia Bank
  4. Westpac
  5. Bank of Queensland
  6. Fifo Capital Australia
  7. Get Capital
  8. Judo Bank
  9. Liberty Finance
  10. Moneytech Finance
  11. Regional Australia Bank
  12. Social Enterprise Finance Australia
  13. South West Credit Union Co-operative
  14. Suncorp-Metway
  15. The Mutual Bank
  16. TrailBlazer Finance
  17. Unity Bank
  18. Webster Dolilta Finance Ltd

Earlier in September, the Federal Government's Australian Business Securitisation Fund also injected $87.5 million into GetCapital, on top of the $46 million it received in November 2020 via the 'Structured Finance Support Fund'.


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Photo - @JoshFrydenberg Twitter

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
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  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $30,000 loan over 5 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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