What is the SME Recovery Loan Scheme?
The SME Recovery Loan Scheme is a program that provides small and medium-sized businesses with guaranteed loans to help their business recover from the impacts of the coronavirus crisis.
The Government’s SME Recovery Loan Scheme is designed to support the economic recovery and provide continued assistance to SMEs dealing with the economic impacts of the coronavirus crisis.
On 25 August 2021, the Government announced changes to eligibility requirements for the SME Recovery Loan Scheme. Current requirements for SME’s to have received JobKeeper during the March quarter of 2021 or to have been an eligible flood-affected business under the Scheme will be removed. The Scheme’s rules will be amended to reflect updated eligibility and loans will be available through participating lenders when changes become effective.
The Scheme is enhancing lenders’ abilities to provide cheaper credit to otherwise viable SMEs for additional funding to get through the Coronavirus crisis, recover and invest for the future. The Government will work with lenders to ensure eligible firms have access to finance to maintain and grow their businesses.
The SME Recovery Loan Scheme builds on earlier loan schemes introduced during COVID-19.
Participating lenders are offering guaranteed loans on the following terms under the SME Recovery Loan Scheme:
- the Government guarantee will be 80% of the loan amount
- lenders are allowed to offer borrowers a repayment holiday of up to 24 months
- loans can be used for a broad range of business purposes, including investment support
- loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme
- borrowers can access up to $5 million in total, in addition to the Phase 1 and Phase 2 loan limits
- loans are for terms of up to 10 years, with an optional repayment holiday period
- loans can be either unsecured or secured (excluding residential property)
- 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 can offer any suitable product to the borrower except credit cards, charge cards, debit cards or business cards. Loans issued under the Scheme may take any other form of credit providing 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 residential property
- purchase financial products
- lend to an associated entity, or
- lease, rent, hire or hire purchase existing assets that are more than half-way into their effective life.
Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme. There will be some restrictions on refinancing loans, such as: not allowing loans more than 30 days in arrears to be refinanced; or borrowers who have entered external administration, or are insolvent, to refinance debts. Lenders can vary or restructure loans when they continue to meet eligibility criteria (including the maximum loan term) and do not increase the loan limit after approval.
Lenders must disclose the effective interest rate (whether variable or fixed) to the borrower at the loan agreement date. For variable rate loans, the lender must disclose the relevant margin and underlying base rate where applicable.
Loans can be used to purchase non-residential real property (such as commercial property) or for the acquisition of another business.
Lenders will be able to rely on a declaration from the borrower regarding the purpose of the loan.
The SME Recovery Loan Scheme is open to SMEs with a turnover of up to $250 million that were recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 or were affected by the floods in 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.
On 25 August 2021, the Government announced that current requirements for SME’s to have received JobKeeper during the March quarter of 2021 or to have been an eligible flood-affected business will be removed. The Scheme Rules will be amended to reflect the updated eligibility and loans will be available through participating lenders when the changes become effective.
Applications close 31 December 2021.
It is third time lucky for the federal government and for SME manufacturers with the banks finally prepared to lend cash to Covid-affected SMEs that need it.
SMERL3 is the government’s third go at designing an SME recovery loan scheme which the banks would get onboard with, as distinct from their usual ‘bugger off’ attitude to SME manufacturers and SMEs in general.
The first iteration by Treasurer Josh Frydenberg of his SMERL loans bombed with the banks lending only an average of $35,000 to eligible SMEs – a drop in the ocean to companies trying to recover from the trials of the pandemic.
Upping the government guarantee for SMERL2 to 50 per cent of the risk again failed to budge the banks who still largely refused to lend to SMEs.
All credit to the government it has persevered and now, under SMERL 3 is guaranteeing the banks 80 per cent of their risk – and @AuManufacturing’s value-added services partners can help you access these SMERL3 loans.
SMERL3 allows for SME’s to borrow any amount up to $5 million over a period of up to 10 years for any worthwhile purpose within the business such as:
1. Refinance existing Debt
2. Repay ATO Debt
3. Repay directors loans
4. Acquire assets (P&E or commercial property)
5. Working Capital.
It cannot be used to on lend monies within the Corporate Structure and it cannot be used for the Purchase of Residential Property.
The loan must be approved by 31st December 2021.