Coronavirus SME Guarantee Scheme – supporting the flow of credit
A new Coronavirus SME Guarantee Scheme means you may be able to access additional loans from participating lenders to support you through the coming months.
The Government will provide a guarantee of 50 per cent to SME lenders for new unsecured loans to be used for working capital.
The Government is also providing an exemption from responsible lending obligations for lenders providing credit to existing small business customers.
This exemption is for six months and applies to any credit for business purposes, including new credit, credit limit increases and credit variations and restructures.
Information for small and medium businesses
The Coronavirus SME Guarantee Scheme will provide small and medium sized business with timely access to working capital to help them get through the impact of the Coronavirus.
The Government will provide eligible lenders with a guarantee for loans with the following terms:
- SMEs, including sole traders, with a turnover of up to $50 million.
- Maximum total size of loans of $250,000 per borrower.
- Loans will be for up to three years, with an initial six month repayment holiday.
- Unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.
The decision on whether to extend credit, and management of the loan, will remain with the lender. However, the Government expects that lenders will look through the cycle to sensibly take into account the uncertainty of the current economic conditions when determining whether credit should be extended.
As part of the loan products available, the Government will encourage lenders to provide facilities to SMEs that only have to be drawn if needed by the SME. This will mean that the SME would only incur interest on the amount they draw down. If they do not draw down any funds from the facility, no interest will be charged, but they will retain the flexibility to draw down funds should the need arise.
SMEs interested in the Coronavirus SME Guarantee Scheme should approach their financial institution for more information. The Government is working with banks and other eligible lenders to ensure loans are available as soon as possible. While the scheme officially commences from April 2020, your bank or other lenders may be able to provide credit sooner, and still benefit from the guarantee.
The Treasurer has varied the authorisation conditions for the Australian Financial Complaints Authority (AFCA) scheme to limit the matters that AFCA can consider in relation to certain decisions made by lenders under the Coronavirus SME Guarantee Scheme.
Under the AFCA Scheme Authorisation (Additional Condition) Amendment 2020, the AFCA Scheme Rules will be amended to limit AFCA’s ability to consider decisions made by the lender about whether to provide a loan (and the amount of the loan) under the Coronavirus SME Guarantee Scheme and ensure that when making assessments or determinations about a complaint, AFCA gives consideration to the impact of the coronavirus on the economy and the intent and requirements of the Scheme.
The amendments to AFCA’s authorisation conditions also apply to decisions made by lenders (all lenders and not only those lenders that are participating lenders under the Scheme) to approve repayment deferrals for businesses in response to the coronavirus crisis. The amendments exclude from AFCA’s remit complaints in relation to decisions by lenders to offer repayment deferrals to businesses impacted by the coronavirus, and any consequential change to the amounts payable under the loan or the duration of the loan.
AFCA will amend its Scheme Rules to give effect to this change and provide further guidance for businesses and lenders. The changes to the rules will apply for complaints made after 25 April 2020.
View the list of participating lenders.
Information for participating lenders
Due to high demand, the expression of interest (EOI) process for the Coronavirus SME Guarantee Scheme is now closed. Further information will be provided on the Treasury website if the Government seeks to undertake another round of EOIs in the future.
- Legislative Rules
- Treasurer’s Delegation
- Scheme Rules – amended Scheme Rules will come into effect (in conjunction with the Scheme Guarantee Amending Deed) on 8 July 2020
- Deed of Guarantee – the Scheme Guarantee Amending Deed will come into effect (in conjunction with amended Scheme Rules) on 8 July 2020
- Reporting Standard
- Treasurer Media Release – Supporting up to $40 billion of lending to SME businesses [9 April 2020]
Allocation principles for the Coronavirus SME Guarantee Scheme
The Commonwealth will initially allocate the majority of the total $40 billion guaranteed loan allocation following an expression of interest process.
The Commonwealth may allocate the guaranteed loan allocation on the basis that some or all of the allocation must be utilised, or expected to the utilised, by a specified date.
For example, if a large lender were to seek a $8 billion allocation, the Commonwealth may provide an allocation to a lender of:
- $6 billion on an unconditional basis; plus
- $2 billion on a conditional basis, to be available only if the unconditional component is utilised, or expected to utilised, over the six month period.
The Commonwealth will in its discretion re-allocate unused conditional allocation amounts as required.
Lenders should provide information to Treasury which they consider appropriate to support their application.
Treasury may request further information from lenders to support their application. Lenders should be in a position to provide additional information if requested, for instance:
- the lender’s expertise extending SME credit on an unsecured and secured basis;
- the lender’s organisational capacity to quickly extend SME credit (using current business portfolio size and market share as a proxies);
- the implications of lender’s proposed allocation in terms of percentage and absolute growth in their business lending portfolio;
- the lender’s financial strength and the robustness of the lender’s credit risk management framework; and
- for mid-sized and smaller banks, and non-bank lenders, the lender’s ability to meet underserviced regional areas or other specific needs.
Non-bank lenders may submit expressions of interest. However, such applications will be subject to additional scrutiny compared to bank lenders, which are licenced and supervised by the Australian Prudential Regulation Authority (APRA).
The Commonwealth is unlikely to grant an allocation to non-bank lenders or other entities with limited pre-existing SME lending experience.
The Commonwealth will make allocation decisions at its discretion, taking into account:
- the factors referenced above;
- the total quantum of all lenders’ requested allocation at that point in time;
- the benefit of promoting competition by mid-sized and smaller banks, and non-bank lenders.
The Commonwealth will consult with APRA in relation to expressions of interest received from ADIs.