The COVID-19 restrictions are being lifted in stages across Australia, and many businesses are emerging from a period of hibernation. It is important to note that depending on the industry, a slow start can be expected due to the cautionary behaviours of consumers. Some businesses, especially the small and medium enterprises (SMEs) may struggle to operate during this quiet period where revenues are low, but ongoing business expenses remain unchanged.
This is a concern because SMEs are the driving force of the Australian economy. According to research by the Parliament of Australia (Released January 2020), In 2018, SMEs employed over 7 million people compared to large businesses who employed just over 3 million people. Therefore, it is essential to help SMEs keep afloat during this uncertain time.
In response, the Australian Government has implemented the Coronavirus SME Guarantee Scheme, to provide SMEs access to working capital that will help get them through the impact of Coronavirus as business is set to resume again. Here is what business owners need to know about the scheme:
How does it work?
The Coronavirus SME Guarantee Scheme supports up to $40 billion in lending to SMEs, including sole traders and not-for-profit businesses, in Australia. Under this scheme the Australian Government will guarantee 50% of the new loans given to SMEs by approved lenders. Because lenders are confident that 50% of their loans will be repaid, they are more willing to lend to SMEs during this unpredictable time. This means that SME business owners can take out a business loan without having to provide business or personal assets as security.
What are the criteria?
The Australian Government will provide eligible lenders with a guarantee for loans that adhere to the following criteria:
- SMEs including sole traders who have a turnover of up to $50 million.
- The maximum loan amount is up to $250,000 per borrower.
- Loan terms are up to three years, with no repayments for the first 6 months.
- Unsecured finance, meaning borrowers will not have to provide an asset as security for the loan.
- The scheme will be available for new loans made by participating lenders until 30 September 2020.
Management of the loan, and the decision on whether to extend credit, will remain with the lender.
What are the benefits?
- Interest rate repayment: As part of the loan being made available, the government has encouraged lenders to provide a facility which only incurs interest if and when the loan is drawn down. This type of facility will provide SMEs with access to funds only if their business really needs additional funding in these unprecedented times.
- Manage expenses: The scheme will allow SMEs to manage their cash flow as they begin to reopen their doors. The extra funds can be used to pay ongoing expenses such as employee wages, utility bills, rents and more. Or it can help settle one-off payments such as equipment maintenance and repair costs.
- Improve operations: The funds can also be used to build a more robust business for the future. Things like upgrading or expanding equipment, or spending money to build an online e-commerce site and install software that will facilitate online payment. A business that utilises the latest technology and has the ability to operate both physically and online will be more likely to withstand other crises that may occur in the future.
The Coronavirus SME Guarantee Scheme has been implemented to support Australian SMEs during this tough time. If you’re an SME business owner and would like to take advantage of this scheme, get in touch with our trusted partner, FutureNow Finance who has access to the government approved lenders and will be able to help you through the application process. Email Sarah at firstname.lastname@example.org or call us on 1300 013 730.
If you have taken advantage of this scheme, and have made changes to your business, it’s essential to ensure that your insurance policy supports these changes. Feel free to get in touch with us so we can help you keep your insurance updated and ensure that it is protecting your growing assets.
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