Business groups have welcomed a revamp of the $ 40 billion loan guarantee program, which will now allow them to use government-backed funding to expand their operations rather than just paying regular expenses.
As part of the changes announced Monday by Treasurer Josh Frydenberg, starting in October, guarantees will be provided on loans of up to $ 1 million, against $ 250,000, and for terms of five years, against three.
The small business loan guarantee, announced during the second stage of economic support on March 22, was quickly replaced by job maintenance, with businesses suffering from a Covid-19 slowdown being more inclined to access bi-monthly wage subsidies of $ 1,500 per employee as the loan scheme.
The program reduced interest rates on business loans from around 9.5% to 4.5%, but was heavily underwritten, with just 15,600 loans worth a total of 1.5%. billion dollars issued. About half – 8,600 loans worth $ 778 million – were issued by a single bank, the Commonwealth, and another 5,500 by NAB.
The second phase of the program will start on October 1 and will be available until June 30, 2021.
Commercial and Asset Finance Brokers Association of Australia chairman David Gandolfo said adoption had been limited because the program was “purely for cash flow” and “did not allow [businesses] invest”.
“The original loans were for three years – if you took $ 250,000 at 4.5% interest without repayment for six months, the remaining repayments were $ 9,000. [a month]He told Guardian Australia.
“It’s a pretty heavy repayment, and a lot of people didn’t really like taking such a loan.”
Gandolfo said banks applied the same credit risk criteria as regular unsecured loans, making them “hard to get”. The changes now allow secured loans, which “will make borrowers more attractive to the bank.”
Gandolfo said the loans would only go to “those who have a viable business”, most likely in growing industries such as transportation, logistics, food distribution, plant and equipment rentals and the making.
Businesses in “serious distress that have been severely impacted” by the Covid-19, such as restaurants, cafes and gyms, would “still be very difficult to obtain bank financing because of their risk profile”.
Council of Small Business Organizations of Australia chief executive Peter Strong said the changes were “a good move”.
When the first iteration of the program was announced in March, “the job keeper became the main focus of the business – [the loan scheme] was just not at the top of the list of people, we were looking to survive rather than grow ”.
“Now they have a better understanding of what’s going on and what’s ahead, now we see that there are people who see the opportunity to do things that they couldn’t do before. “
Commonwealth Bank Managing Director Matt Comyn said the overhaul was “a welcome development from the government as it gives small businesses access to a deeper, longer-term pool of financial support that will be needed. to help support the recovery and bring [small and medium enterprises] with the confidence to plan and invest for the future”.
Frydenberg said the government “will continue to support small businesses as they seek to rebuild, adapt and create jobs on the other side of the coronavirus crisis.”
Labor shadow treasurer Jim Chalmers said the “second attempt” of the program “must do a much better job of supporting small businesses than the first.”
Chalmers suggested that the use of the “remaining funds from this largely subscribed program [to] taking out larger loans “could not” meet growing anxiety about the future of vital economic supports. “