SME Guarantee Scheme

SME Guarantee Scheme

What is the SME Guarantee Scheme?

The COVID-19 SME Guarantee Scheme will support up to $40 billion of lending to small and medium enterprises (SME), sole traders and not-for-profits. This scheme is essentially a cash flow loan that will be provided by your bank, but the Federal Government is underwriting the risk by 50%. It will allow your bank to give you the loan without it being secured. They will assess your financial position and ensure that you can pay the loan back, but they will look past the current COVID-19 pandemic. So, this means that they will look at whether you will be able to pay the loan back in the future.

The purpose of the SME Guarantee Scheme is to ensure that small, medium, sole-trader and not-for-profits have access to the capital that way be required to get face the impact of coronavirus in Australia.

The scheme will be available up until 30 September 2020 by participating lenders.

What types of loans are available?

The loans are strictly to be used for business purposes only. Furthermore, they can only be used to support current and/or upcoming cash flow needs. Examples of such include staff wages and salary and rent.

The type of loan type available is a decision that will be made by the individual lender. Some that may be made available are term loans and overdrafts. The Government particularly encourages facilities such as overdrafts, which only have to be drawn if required. With this, interest will only incur and have to be paid by the business on the amount drawn down. No interest incur, if the business does not draw down on the funds

Credit card facilities are not available under the scheme.


When do you have to start paying back the loan?

There will be a six month ‘no payment period’, so you will not have to make any payments for six months. At the end of this six month period, there will not be a balloon payment. Therefore, you will not have to pay six months worth of interest in the seventh month.

How will the interest on the loan work?

The interest accumulated over the six month ‘no payment period’ will be paid over the period of the loan. You can either extend the period of the loan or pay more in each payment. The interest that you do end up paying is approximately half of what you would typically pay on a business loan.

These loans can be done on a draw-down approach. For example, if you get a loan for $50,000, you will only need to pay interest on the amount that you draw-down.

What are the terms of the loan? Who is eligible?

Under the following terms, eligible lenders are being provided with a guarantee by the Australian Government:

  • The SME or sole-trader must have a turnover of $50 million or less.
  • $250,000 is the maximum loan available per borrower.
  • Loans will be a maximum of three years, with a 6 month holiday for repayments initially.
  • Borrowers will not have to provide an asset up front as security for the loan. The loan is unsecured.

Are not-for-profits eligible for the loan?

So long as the not-for-profit had a turnover of $50 million or less and they have an ABN, they will be eligible for the scheme. Not-for-profit entities seeking to apply for the loan, should make contact with their current financial institution. If for whatever reason they are unable to assist, then contact can be made with any other eligible lender.

I am looking for further information or more COVID-19 support

If you are looking for more information, you should visit the Treasury website. There is also a JML ROSE legal blog which contain regular and up-to-date articles. You may also wish to contact our lawyers for a consultation.