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SME loan scheme was ‘a little bit before its time’, admits ABA

Adrian Flores
Adrian Flores
01 October 2020 1 minute readShare
SME loan scheme

The Australian Banking Association hopes a growth in business confidence will lead to a better take-up of the government’s revamped SME guarantee scheme, conceding that the original scheme was introduced “a little bit before its time”.

In July, the federal government announced it would extend its Coronavirus SME Guarantee Scheme to 30 June 2021.

The popularity of the scheme has been limited so far. Up to July 2020, only 15,600 businesses signed up to loans worth a combined $1.5 billion, compared to the scheme’s planned value of $40 billion.

The second phase of the scheme launched on 1 October and with slight difference compared to the scheme’s original phase which began on 23 March.

The terms of the loans will be five years instead of the original three years, while the amount that can be borrowed moves up to $1 million from the original $250,000.

Speaking exclusively at MyBusiness Week, Australian Banking Association executive director of policy Aidan O’Shaughnessy said the SME Guarantee Scheme was “a little bit before its time”.

“I think small businesses during the height of the pandemic just said, ‘I'm not confident about taking on additional borrowings right now’,” Mr O’Shaughnessy said.

“What we found was some people said, yes, it’s perfect for me and I will use it, but others said, actually, I would prefer a different product, for example, the overdraft.”

Mr O’Shaughnessy also hoped that allowing securities to be taken for the loans would encourage better take-up of the scheme from small businesses.

“There’s a lot of small businesses that would have some asset which they could offer as security, which alters the risk profile of the loan and makes it more competitively priced for that business,” he said.

“I think all we need is a bit of demand from it, and that demand comes from confidence as well, saying I’m confident I can borrow to grow myself out of this and what products are available.

“The banks that would sign up to it will say, ‘Well, here’s a range of products. You can have a term loan or maybe asset finance or maybe an overdraft’, because each small business is slightly different.”

SME loan scheme was ‘a little bit before its time’, admits ABA
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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