While there is likely to be an economic rebound when restrictions ease across the country, for many, a funding gap will remain between the assistance provided by Government grants and viable trading conditions.
The expanded SME recovery loan scheme took effect on 1 October 2021. Under the scheme, the Government will guarantee 80% of loan amounts to businesses that have been adversely impacted by COVID-19.
The lending terms, repayment, and interest rates are set by the lenders but cannot be backed by residential property, that is, if the Government is underwriting the loan, lenders cannot ask business owners to use their home as security. However, Directors guarantees are likely to be required.
Under the scheme, lenders can provide:
A repayment
holiday of up to 24 months
Loans of up to $5m
Loan terms of up to 10 years, and
Secured and unsecured loans
The recovery loans can be used to refinance existing loans, purchase commercial property, purchase another business, or working capital. But, cannot be used to purchase residential property, financial products, lend to associated entities, or lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.
The loan scheme is generally available to solvent businesses with a turnover of up to $250m, have an ABN, and a tax resident of Australia. Loans remain subject to lending conditions and generally the lenders will look to lend to viable businesses where it is clear that they can trade their way out of the impact of COVID-19 or the assets of the business make the break-up value attractive.
If you default on your loan, you cannot simply walk away from it. The Government is guaranteeing 80% of the lender’s risk, not your debt. Director guarantees are still likely to be required and for many loans, it will be secured against a business asset. On the plus side, interest rates are very attractive right now and many of the lenders are providing a repayment holiday of up to 24 months and in some cases, existing debt can be bundled into the loan arrangements.