SME Loan Guarantee Scheme: Which businesses have been approved, and will you fit the bill for phase two?

By Katherine O'Chee ·
Businesswoman applying for business loan

As lenders gear up for phase two of the government’s SME Loan Guarantee Scheme, new Commonwealth Bank figures have emerged showing NSW and Victorian businesses have snagged the biggest piece of the scheme’s funding pie to date. 

NSW and Victoria made up almost two-thirds of CommBank’s government-backed loans (38% and 26% respectively), while Queensland came in third place at 16%. 

“Obviously different lockdown measures have impacted some businesses more than others and many of our customers, particularly those in the greater Melbourne and greater Sydney area, worked with our bankers to quickly ensure they had extra cash flow in case they needed it,” CommBank’s group executive for business banking, Mike Vacy Lyle said. 

Under the first phase of the scheme, the government guaranteed half of all unsecured three-year business loans of up to $250,000 issued by participating lenders including CommBank, ANZ and 39 other smaller providers. Under phase two, the loan terms have been extended to five years, and loan amounts increased to $1 million. 

Almost 20,000 small to medium sized businesses (SMEs) took advantage of phase one, with CommBank approving loans for 9,400 of these firms. 

According to CommBank, nearly one-fifth of those businesses belonged to the property and business services sector (17%), while 16% came from retail, 14% from construction, and 14% from accommodation, cafes and restaurants - all industries that experienced high levels of disruption due to COVID-19.

What to expect from phase two

Now phase two has begun, with Treasurer Josh Frydenberg saying that the extended loan terms and amounts aim to help businesses shift gears from short-term survival and long-term investment. 

And while uptake in the first phase was low - about $2 billion compared to the planned $44 billion - CommBank’s Vacy Lyle said they expect businesses will show much greater interest in the second phase. 

“Not surprisingly, given the uncertainty about the timing and trajectory of the recovery, demand for credit has been somewhat modest but I expect we will see an increase in demand with the expansion of the scheme terms,” he said. 

“This next phase of the scheme will allow some businesses to continue to trade through ongoing challenges and others to make important investment decisions that will set them up for the future.”

Phase two will run until 30 June 2021. 

The Australian Financial Review (AFR) reported that another key difference with phase two is that the government has capped the interest rate at just over 10%, following reports that some lenders were charging scheme borrowers rates as high as 18%. 

But while lower interest rates will benefit some industries, it may exclude others, said the Australian Finance Industry Association’s chief executive, Diane Tate. 

“For example, fit-outs for restaurants, cafes or event spaces, some equipment used in gyms, and some IT equipment frequently used in offices in our cities and regional centres, will likely be out of scope,” she told the AFR

However, “if you’re a manufacturing, mining, construction, transport or agriculture business who wants to use, say a three- or five-year loan to purchase a motor vehicle or other high-quality assets, this is good news.” 

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Page last updated October 20, 2020

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Katherine O'Chee
Katherine O'Chee
Money writer

Katherine O’Chee is Mozo’s international money transfer and forex expert and business banking writer. She keeps Mozo’s readers on top of the latest news and writes in-depth features to inform and help Australians make smarter financial decisions. Her work has been published in major media outlets including Sydney Morning Herald, SBS News and Bangkok Post. She has a Bachelor of Arts (Media and Communications) from the University of Sydney.