The current operating environment is obviously very challenging for most businesses around Australia. Whilst the current lending landscape for SMEs is constantly changing through this time, the following provides a summary of the government schemes to support businesses.
Coronavirus SME Guarantee Scheme
The government has announced a plan to support $40bn of lending to SMEs from the 1st April 2020 to the 30th of September. This support is through a 50% guarantee (to the lenders) over loans provided by bank and non-bank lenders over this period. The loans will be capped at $250k per borrower, be unsecured (that typically implies that they will require a GSA over the business and director guarantee rather than any asset security), have a term of up to 3 years and have a six month repayment holiday period. SMEs with a turnover of up to $50m will be eligible for these loans.
Importantly, the majority of lenders have indicated that this support will only be made available to existing clients though some lenders have also made the scheme available to new clients. The credit assessment being carried out by the lenders is primarily focussed on the level of debt serviceability of a business based on their level of profitability before the disruptions caused by Covid-19. This means a strong focus on the FY19 financials and management accounts for the period to Dec-19 to undertake their serviceability calculations.
The program is available to all the major banks and has also been extended to a number of non-bank lenders.
Other government stimulus measures around SME lending
The government has announced a number of other measures for both bank non-bank lenders that are designed to support the flow of credit by providing liquidity into the system. This has included an exemption on the responsible lending obligations for lenders, providing a term funding facility to the major banks at a low cost of funding (0.25%) and supporting non-bank lenders through direct investments in primary market securitisations and warehouse facilities.
The above stimulus package made available to SME lenders has enabled these lenders to offer support to businesses that have been impacted by Covid-19. This support includes:
- A deferral of loan repayments for six months (these loan repayments will then be added to the end of the loan or incorporated into higher payments over the life of the loan);
- Interest free periods; and
- Waiving of fees and charges.
This support package is available to SMEs that have under $3m in total borrowings (some lenders are expanding this to borrowers with up to $5m in total borrowings) and are impacted by the Covid-19 pandemic. In some instances, lenders are instantly granting approval for the deferral of repayments and other support measures though in most cases, will need to undertake a review of the situation (review of financials, bank statements, level of impact, etc.) to verify the need for support for the company's financial position.
This policy has been formulated by the Australian Banking Association in conjunction with the government and is therefore only being implemented by members of the ABA that comprise the major banks, regional banks, Macquarie, HSBC, ING, Rabobank and a small number of other international banks. Other SME lenders that aren't part of the ABA have developed their own policies around support packages for impacted business and from our experience to date, most have been very supportive through solutions offered to clients.
Please don't hesitate to get in contact with us if you would like to discuss funding options for your business.
