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How the SME Guarantee Scheme Can Help Your Business

Everything you need to know about the SME Guarantee Scheme

Small and Medium Enterprises (SME) are the backbone of the Australian economy. From the café on the corner where you get your morning coffee to the summer dresses you buy at the markets, it’s the personal touches from these hard working people that makes all the difference.

Many small businesses across the country are facing challenges due to the Covid-19. It is challenging with businesses needing access to vital additional funds to get through and lenders reluctant due to the state of the economy.

To accelerate the economic recovery, the Government is supporting up to $40 billion of lending to SMEs, ensuring businesses can benefit from lower interest rates.

SME Guarantee loans with

What is SME Guarantee Scheme?

The SME Guarantee Scheme is part of an economic package released by the Government to support Small to Medium Enterprise (SME). The Scheme allows access to low-cost loans for businesses who need a line of credit to continue their operations effectively.

How does the Scheme work?

So the Government has guaranteed 50% of new loans, but what does that actually mean? The SME Guarantee Scheme allows eligible lenders to access a $90 billion dollar funding pool at a low interest rate.  This has a two-fold effect for the economy.

  1. It keeps interest rates low for borrowers (small businesses).
  2. It encourages the flow of credit to continue, encouraging lenders to continue lending.

Who is eligible?

The Scheme includes Small and Medium Enterprises (SME), including sole traders and not-for-profits who meet the following criteria:

  • Hold an ABN
  • Less than $50 million annual turnover
  • Need assistance with current and upcoming cash flow, including working capital, liquidity and operating expenditure
  • Not receiving any other Government Scheme Loan

What is the point?

The scheme is designed to:

  • Keep small businesses running during a difficult economic environment
  • Give lenders confidence to extend finance

Rather than giving a grant or handout, the SME Guarantee Scheme works to help small business and support financial institutions by encouraging partnerships to bolster the economic performance in the short-term and setting it up for the long-term.

What does this mean for you?

If you are a small business owner you may have felt the effects of the coronavirus lockdown. Rather than closing your doors or accessing high-cost funding like credit cards, a low-cost business loan can keep your business thriving while the economy is recovering. It could even assist you to expand your business for the future.

You keep mentioning low rates. What exactly will it cost?

The cost of a loan on the SMEG will vary depending on your circumstances. Based on the lenders we partner with, the average interest rate is 5.5%

Some lenders are charging up to 18%, so be wary and do your research, or drop us a line and we can find the best value lender for you

How do I access the SME Guarantee Scheme?

The first thing to note is that SME Guarantee is not a grant. It is accessible through participating lenders, rather than applying through the Government.

The best option is to find a broker that can connect you to the best lender suited to your business needs. As a partner of many lenders participating in the scheme, we can find you the best rates and conditions. Check out our article 3 reasons you should use a broker.

What about responsible lending?

There is an interesting point written into the SME Guarantee Scheme that is worth mentioning. The Guarantee exempts lenders from responsible lending guidelines for 6 months that the Scheme is running. This means you can gain access to finance quickly and efficiently when you need it.

In reality, most lenders will not be changing their guidelines, it just means that the process will not be bogged down in unnecessary paperwork.

asset vs line of credit

What types of loans are on offer?

Under the SME Guarantee Scheme, small businesses can obtain finance to assist with cash flow or purchase of a new asset. Cash flow loans will be useful for businesses that have seen a temporary drop in revenue during lockdown. Most of the time these loans will come in the form of a line of credit. Asset finance is a lump can be used to obtain a new asset (such as equipment or machinery) to expand your business – a great idea while interest rates are low.

What is the difference between Asset Finance and a Line of Credit?

A line of credit loan gives a business access to a capped fund. They can draw from it if needed and will only be charged interest on the amount they have drawn

This is advantageous because you are not paying interest on money you haven’t yet drawn, yet the reassurance of having credit when you need it is there.

Asset finance is a lump sum to pay for the acquisition of new equipment, renovations or other one-off costs. They can be used to build your business and are best taken out when interest rates are low.

How much can I borrow?

SME Guarantee Scheme has been introduced in two phases.

Phase 1 – Ending 30th September, allows:

  • Maximum total size of loans of $250,000 per borrower
  • No Repayments for first 6 months
  • 3-year loan term
  • Unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan

Phase 2 – Starting 1st October 2020 till 30th June 2021, will expand to:

  • Up to $1 million per borrower
  • No Repayments for first 6 months
  • 5-year loan term
  • Secured or unsecured

If you are interested in applying for a loan under the SME Guarantee Scheme, send us an enquiry. We are proud to be working directly with a range of participating lenders and can help you navigate the Scheme, finding you the perfect solution, tailored to your needs.