Coronavirus SME Guarantee Scheme - supporting the flow of credit
Source: Australian Government - The Treasury
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 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.
What does this mean?
Whilst cashflow forecasts will be significantly uncertain, the six month grace period does mean that organisations can move quickly to increase their cash reserves. Furthermore, the option of a line of credit should be considered as a potential financial risk control.
Summary of the VUCAP view of this position and the impact on Organisations.
Political - Favourable over the next 36 months
Economic - Favourable over the next 36 months
Sociocultural - Favourable over the next 36 months
Organisations should conduct a financial risk review and identify opportunites to leverage this position.