Government-backed COVID-19 loans extended, now worth up to $1 million

The Morrison government is extending its small business COVID-19 loans scheme until June next year, after revealing that banks have so far lent a far lower amount than was targeted at the height of the pandemic in April.

Also, the maximum loan size will be increased four-fold to $1 million and terms expanded from a maximum of three years to five, under a plan to help businesses re-start their operations over the December quarter.

Treasurer Josh Frydenberg says about 15,600 SMEs have so far accepted loans worth $1.5 billion under the federal government’s 50% guarantee on unsecured loans, which was unveiled as a coronavirus stimulus measure earlier this year.

That’s well short of the $40 billion loan capacity for the scheme flagged by the government in April, underpinning the case for another “phase” of the program targeted at businesses moving out of pandemic hibernation.

“The expanded scheme will shift from providing access to working capital to help businesses stay afloat during the crisis to now also enabling them to access more affordable and longer-term credit so that they can invest for their future,” Frydenberg said in a statement on Monday

The second phase of the program will kick off on October 1, a day after the existing program expires on September 30.

There are a raft of other changes to the government-backed loan program that will begin on October 1:

• Loans will be provided for purposes other than working capital;
• Secured loans (i.e. where collateral is presented) will be permitted in addition to unsecured loans;
• The maximum loan size will increase four-fold to $1 million, up from $250,000 per borrower;
• The maximum loan term will increase to five years, up from three years; and
• Lenders will have additional discretion to offer repayment holidays.

The extended loan program will also provide SMEs with access to additional finance over the second phase of JobKeeper payments, which will be unveiled on Thursday.

Because businesses need to pay wages before being reimbursed by the Australian Taxation Office (ATO) under existing JobKeeper rules, some bosses have complained about cashflow issues resulting from the program.

In response, the government has cited its loan guarantee scheme as an option for businesses tight on money, but analysis of the number of businesses actually taking up the offer indicates many SMEs aren’t too keen to take on extra debt ahead of a recession.

While the government brought together Australia’s largest banks to open dedicated hotlines for businesses struggling to make their wage payments in April, subsequent inquiries revealed National Australia Bank had received only about 1000 calls by late May, while ANZ’s hotline has averaged about 75 calls per day since the launch, peaking at 250 towards the end of April.

Under the guarantee scheme, so far 44 lenders have been approved, 15 more than was initially flagged when the program was first announced.

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