Non-bank business lenders join SME Loan Guarantee Scheme

Katherine O'Chee

28 Apr 2020

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Small businesses impacted by the coronavirus may soon find it even easier to secure extra finance, following the government’s latest decision to involve non-bank lenders in its SME Loan Guarantee Scheme.

Under the SME Loan Guarantee Scheme, the federal government will guarantee half of all new three-year unsecured business loans of up to $250,000 issued by eligible lenders, between 14 April and 30 September. Borrowers will receive an initial six month repayment holiday, with interest capitalised.

Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said the move should help small businesses get their hands on working capital loans quicker than they would with the big four banks. 

“The inclusion of five non-bank lenders in the scheme, means there is a greater chance of credit flowing to viable small businesses that need it,” Carnell said.

“Non-bank lenders are accustomed to lending unsecured and getting funding to SMEs quickly.” 

The first wave of fintechs chosen for the scheme are: Prospa, OnDeck, Moula, GetCapital, and Liberty Financial. 

Carnell expressed support for the selected fintechs who have also signed up to the Fintech Code of Conduct, “as this commits them to provide a process of complaints-handling and transparency around loan rates”. 

“It’s encouraging that four of the chosen non-bank lenders are signatories to the Code - Prospa, Moula, Get Capital and On Deck Capital,” she said.

From May 1, Spotcap will also be offering unsecured business loans under the scheme.

RELATED ARTICLE: Guide to Australia’s coronavirus financial support for small businesses 

“It’s important the selected fintechs pass on the lower rates for loans under this scheme to small businesses, as they are backed by a 50% government guarantee,” Carnell said. 

“Essentially this means the government is taking on half of the risk of the loan and that needs to be reflected in loan pricing.” 

Prospa has already said it will adopt such an approach. CEO Greg Moshal told the Australian Financial Review that although the fintech would keep its risk-based pricing model, interest rates would be reduced to take into account the government guarantee. 

“Obviously there is increased risk in this environment… but we’ve been able to decrease our pricing as a result of the scheme.” 

Under the scheme, Prospa will be allocated up to $223 million to assist with its small business lending.

RELATED ARTICLE: ABS data reveals extent of COVID-19 financial hit to Australian businesses

Facing financial hardship amid COVID-19? For more support options, check out our guide on the government and various banks’ coronavirus financial relief packages for small businesses

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