What is this initiative?
The Australian Government, though the Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme, will guarantee 50% of new loans issued by participating lenders to SMEs. Under the Scheme, eligible businesses will be able to take out an unsecured business loan of up to $250,000 where otherwise (pre Covid-19) banks would most likely require a form of security for business loans. This initiative will essentially be facilitating loans to support the cash flow needs (e.g. rent and wages) of SMEs in the midst of major disruptions to their businesses due to Covid-19.
Who is eligible for this loan?
This loan is available to all businesses with a turnover of less than $50M who have been impacted by Covid-19.
How does the loan work?
The loan is an unsecured business loan offered by the major banks for a maximum 3-year term. This is an important initiative because major banks usually require security in the form of property for a business loan.
For the first six months there are no repayments on the loan, however interest will still accrue and be capitalised (added) to the loan. After 6 months, the loan will revert to Principal & Interest, and must be paid back including the capitalised interest.
Am I charged interest during the 6-month period?
Yes, the loan is not interest free for the 6-month period. Interest is calculated on an Interest Only period and the capitalised to the loan.
What can I use the loan for?
The loan is to be used to pay ongoing businesses expenses and pay wages to maintain staff. It is not intended for purchasing assets or for debt consolidation.
What is the maximum loan amount?
The maximum loan is $250,000, however this includes the capitalised interest. This means realistically the loan advanced to you is ~$242,000.
How is the loan amount determined?
The loan amount will be a percentage (e.g. 10%) of the revenue recorded in your BAS for the 1 July 2019 to 31 December 2019. If you require more than this, it will be assessed case by case.
Do I have to be an existing customer of the bank?
In most cases, banks are offering these loans first to their existing customers. Only NAB has openly stated that this loan is available to existing and new customers.
How do I know if this loan is right for my business?
You will need to evaluate if your business can manage the repayments when the loan reverts to principal & interest. For example, the repayments for a $250,000 loan paid back over 2.5 years on a 5.5% interest rate are $8,938.43 per month.
Before applying for the loan, a bank will want you to consider the alternative options available to you including:
- Accessing your own savings
- Reducing business expenses
- Accessing Government incentives
- Deferring repayments and / or varying other loan facilities
What is the process?
Enquiries can be submitted online or via your broker or banker. The online enquiry forms can be found here:
- Westpac and ANZ pages have not released specific web pages at this point in time
A formal application process will then be initiated.
What paperwork is required?
At a minimum you will need to complete a business consent form and supply your last 2 BAS reflecting 1 July 2019 to 31 December 2019. If they bank requests more information, they will most likely request:
- Your FY18 and FY19 Business Tax Returns & Financial Statements
- FY20 YTD management accounts
- 12 months transaction history prior to the impact of Covid-19
- 12 months ATO Tax Portals
- An update of your assets and liabilities.
Is the approval process meant to be easier than before Covid-19?
While there is a Government prerogative to lend, banks have emphasised that to quality for the loan, your business have been able to afford the loan prior to Covid-19. At this stage it is unclear whether ‘normal credit standards’ apply or they have been loosened to accommodate for the impact of Covid-19.
What questions will the bank ask?
To be eligible, the bank will ask:
- How has your cash flow been impacted?
- What actions are you taken to reduce your expenses or maintain income?
- Are you reliant on another industry to supply goods and services? How is this impacting your customers and are alternative suppliers available?
- Does requesting the loan make sense in the current environment and the historic performance of your business?
- How do you intend to pay back the loan after 6 months?
What are the rates and fees?
There is no establishment fee or monthly fee. Rates will be dependent on your bank, but range between 4.5% – 6.5%. These are significantly discounted rates.
If you would like SF Capital to manage the application for you, our fees ex GST are:
- $295 application fee
- 1% success fee, with a minimum success fee of $800
We have managed many business loan applications and believe we can increase your chances of loan approval.