Renaming it as the SME Recovery Loan Scheme, the government will increase its guarantee from the current 50-50 split between the government and the banks to an 80-20 split.
The government said this will encourage more banks to support small businesses.
The size of eligible loans has been increased from $1 million under the current scheme to $5 million.
Businesses with a higher turnover will have their maximum eligible turnover increased from $50 million to $250 million, while maximum loan terms will also be increased from five to 10 years.
Lenders will also be allowed to offer borrowers a repayment holiday of up to 24 months.
Eligible businesses will also be allowed to access more concessional interest rates available under the program and to better manage their cash flows through an extended loan term and lower combined repayments in order to refinance their existing loans.
The government estimated that more than 350,000 current JobKeeper recipients are expected to be eligible under the scheme.
Loans will be available from 1 April 2021 and must be approved prior to 31 December 2021.
Treasurer Josh Frydenberg said the scheme is part of the next step to help small businesses stand on their own two feet as the economy recovers from COVID-19.
“The expansion and extension of the loans will back businesses that back themselves and will help businesses who continue to do it tough build a bridge to the other side of the crisis and keep their staff employed,” Mr Frydenberg said.
However, according to CPA Australia general manager of external affairs Dr Jane Rennie, the loan scheme is overly focused on business survival rather than business recovery.
“Like HECS loans for university students, this scheme allows the government to lend money to struggling businesses and recoup at a future point in time,” Dr Rennie said.
“However, whereas HECS is designed to support students while they learn skills to succeed in their careers, there’s no longer-term objective here.
“Professional advice is needed to help businesses move from survival to recovery. Without advice, providing loans is like treating the symptoms without addressing the underlying condition.”