Banking: Michelle Baltazar

A more generous loan scheme can help SMEs recover from the pandemic

Small business owners worried about their cash flow while business is still slow can take advantage of a new type of bank loan.

This product is made possible by the federal government’s efforts to help businesses get through the pandemic.

Under the so-called SME Recovery Loan Scheme, which came into effect on April 1, eligible businesses can borrow up to $5 million, of which 80% is guaranteed by the government.

This is a more favourable deal than the loans that exist under the SME Guarantee Scheme, where small businesses can borrow only $1 million and only 50% of it is guaranteed.

Eligible business owners can have loans under both schemes, but the point of the new one is to provide more support for SMEs, which account for more than 99% of the private sector in Australia, with funding after the JobKeeper scheme ended on March 28.

The eligibility criteria for the SME Guarantee Scheme and the SME Recovery Scheme are broadly the same, so any businesses that require a “second wind” of support are most likely eligible for the second one.

The big four banks have since launched their suite of products under the scheme. If you are shopping around for the best loan, your key considerations should include:

Variable rate

The total cost of repayments will depend on the variable rate attached to the loan. The Westpac SME Recovery Loan is available for a variable rate upwards of 2.58%pa while Commonwealth Bank charges a 2.6%pa variable rate for a secured loan and from 3.25% for an unsecured loan.

If you want the added flexibility of a “repayment holiday” option tacked onto the deal, CBA can offer it, but the rates increase to 2.85% and 3.75% respectively.

Deferral period

The government wants small businesses to succeed, so under this loan banks can give a generous length of time to defer payments. With ANZ, for example, customers can defer for 12 months and then apply for a further 12 months if necessary.

Secure or unsecured

One of the big differences between these business loans and those available before the pandemic is that you can’t use residential property to secure the loan.

The amount you can borrow also varies. At NAB you can apply for an unsecured loan up to $250,000 only, while you can apply for a secured loan to the maximum $5 million, guaranteed by the government.

Refinance existing loans

You may not necessarily want to borrow more money but might want to move your existing loans to a new loan with more favourable terms. It depends on the bank what existing debt you can roll over but it’s worth inquiring.

Check the fees

Make sure there are no hidden fees. Typically you have to pay an application fee, loan service fee, loan administration fee, accountkeeping fees and merchant fees. NAB, for example, does not charge application or account fees for eligible customers.

Is it the right one?

With hundreds of business loan products in the market, you don’t want to be caught out applying for a loan that sounds as if it’s covered by the government’s guarantee but is not. Think of this as part of your final checklist before signing on the dotted line.

The scheme is not just for working capital or normal capital expenditure.

If you find that your business is thriving despite the pandemic, you can also apply for the loan to acquire a business or buy commercial property.

But before you take out a loan, make sure you have thoroughly assessed the prospects of your business and you’re not just throwing good money after bad. If you are just trying to stave off bankruptcy when it’s clear that the prospects of the business have irreversibly changed, then it’s better to look at your bank’s financial hardship program. The Australian Banking Association has a section on its website that lists the phone numbers and websites of the financial hardship program of more than 20 institutions.

Go to ausbanking.org.au/for-customers/ financial-difficulty, to find out how your bank can help.