New SME loans scheme a missed opportunity

Some small business owners would have been able to breath a little easier this week, after it was reported that the federal government was set to announce post JobKeeper relief in the form of a new loans scheme.

Initial reports suggested that the loans would be revenue-contingent, reflecting an idea championed by outgoing Small Business Ombudsman Kate Carnell, who argued small businesses should be given access to HECS-style loans that are only repayable when their revenue recovers to a certain point. 

Instead, the now confirmed SME Loan Recovery Scheme will be a significant expansion of the existing SME loan guarantee scheme, with higher caps on loan amounts, revenue eligibility criteria and repayment timeframes. 

Businesses will be able to borrow up to $5 million over a 10-year term, with principal and interest-free periods of up to two years. 

The government will also take on more of the risk, guaranteeing 80% of the loans, up from 50% in the previous scheme. 

However, the loans will only be available to businesses that have been receiving JobKeeper payments in the March 2020 quarter. 

Treasurer Josh Frydneberg says the government is targeting the “sectors and regions across the country that are continuing to do it tough” and about 350,000 businesses will be eligible for the loans. 

It has been clear for some time that additional support was going to be needed after the final JobKeeper payments are made, and offering businesses improved access to finance makes sense.

But it remains to be seen if these new loans will be taken up by SMEs. 

The first incarnation of the SME loan guarantee scheme missed the mark, with just $2 billion of the headline-grabbing $40 billion allocated actually loaned to businesses, as of January this year. 

The initial design of the program was flawed, something which the government itself conceded when it made a number of changes in October last year. 

Now, with only weeks to go before JobKeeper ends, the government had an opportunity to develop a support package that would genuinely help the thousands of SMEs still recovering from the devastating effects of the pandemic. 

Carnell’s proposal may have been just that. But instead, the government has chosen to extend a scheme that hasn’t worked, and one that relies on SMEs being able to secure finance from banks that have traditionally made that process very difficult.