A Comprehensive Overview of the SME Recovery Loan Scheme

February 20th, 2022

As the COVID-19 pandemic continues, the Australian economy and private businesses feel their productivity and profitability suffer. Unfortunately, the situation is not likely to improve significantly anytime soon, so the country has to brace for these effects for a few more years. 

Amidst these circumstances, the most affected are small and medium enterprises (SMEs). The good news is that business finance is guaranteed by the Australian government to support SMEs’ recovery. The government’s aim is to mitigate the effects of the pandemic and assist businesses to get back up on their feet. 

The SME Recovery Loan Scheme can help SMEs get by during these trying times. To know more about the Scheme, we’ve prepared this comprehensive guide to help you understand what it is and how you can use it to move your business forward.

What is the SME Recovery Loan Scheme?

The COVID-19 pandemic has taken a toll on businesses of all sizes. However, small and medium enterprises (SMEs) have been negatively impacted the most, as they may not have enough resources to survive the crisis. Because of this, the Australian government responded with the SME Recovery Loan Scheme

This latest round of loan grants is an amended version of the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Act 2020. The expanded loan scheme runs from January 1, 2022 to June 30, 2022. 

Under the SME Recovery Loan Scheme, eligible businesses can have access to affordable finance with lenders providing credit at lower rates to promote business recovery and future investments among affected SMEs.

Main Features of the SME Recovery Loan Scheme

  • Borrowers can access up to $5 million in total

With the updated loan scheme, eligible borrowers can borrow up to $5 million in total in addition to the Phase 1 and 2 loan limits. Loans under the Scheme can have repayment terms of up to 10 years with options for holiday repayments of up to 24 months. 

  • The Government guarantees 50% of the loan

To further shore up the confidence of both the lender and the borrower, 50% of the borrower’s loan amount will be guaranteed by the government. 

  • Interest rates are capped at around 7.5%

Interest rates on finance are still up to the lenders. However, interest rates are capped at around 7.5% to provide borrowers with finance at cheaper and more affordable rates. For variable rates, there will be room for rate increases as dictated by market conditions. 

How the SME Recovery Loan Will Help Businesses

  • Covering overheads

The constrictions caused by wide-scale lockdowns have affected the cash flow of many businesses. With the Scheme, borrowers can pay their business expenses such as rent, utilities, salaries, and the like to continue operations.

  • Refinancing existing loans

In the early stages of the pandemic, SMEs may have taken out loans for a large amount to try to keep their businesses afloat. By utilising the expanded loan scheme, they can refinance any loans they owe, including those they may have secured during Phase 1 and 2 of the SME Recovery Loan Scheme, at more favourable rates.

  • Business acquisition

The Scheme enables SMEs to acquire new businesses for their expansion. Doing this can help their business flourish and speed up their recovery as they enter a new venture. 

  • Supporting investment

Aside from acquiring a new business, eligible borrowers can use the finance to support their current investments and other future investments. Ultimately, that can expand their investment portfolio and accelerate the growth of their business.

Who is Eligible for the SME Recovery Loan Scheme?

SMEs affected by the pandemic qualify for the loan if they meet the following criteria:

  1. A valid Australian Business Number (ABN) or Australian Company Number to help identify their business. 
  2. An annual turnover that’s less than $250 million. 
  3. Continued adverse economic effects on the business.
  4. An SME Eligibility Declaration to confirm the SME status.

Other eligible borrowers include recipients of JobKeeper payments from January 4, 2021 to March 28, 2021, self-employed individuals, and non-profit organisations. 

How to Apply for the SME Recovery Loan Scheme

  • Approach a lender 

If you’re planning to apply for the scheme-backed loans, you should research which lenders are participating. The government is not involved in the lending process, as they will only be your guarantor. 

A variety of lenders offer different terms and procedures for finance while upholding the core features of the Scheme. For example, Earlypay’s Invoice-backed Line of Credit integrates seamlessly with you accounting software to quickly and smoothly process your transactions. . 

  • Submit requirements

Take note of the requirements of the scheme-backed finance. Gather the required documents to support your eligibility and other paperwork to avoid any delays in your application.

  • Wait for the lender’s decision 

While there are certain guidelines to the scheme-backed finance, lenders are still the ones to decide on the terms of your loan. They will only utilise the loan program’s guidelines to determine what terms are acceptable under the Scheme. 

  • Access your funding

Once the lender gives the green light, you’ll then receive your approved finance.

Why Earlypay is Your Best Partner for The Scheme

Earlypay’s Invoice-backed Line of Credit is affordable and accessible to most SMEs. It is based on the value of your customers’ unpaid invoices and can grow in line with your sales. 

Here’s how Earlypay’s Invoice-backed Line of Credit cansupport Australian SMEs

  • Steady cash flow

Not all businesses are booming all year round. There may be off-peak seasons where your expenses exceed your income. In this scenario, having easy access to funds is necessary so you can use them to cover your operational costs. 

  • Greater control on finances

Traditional loans typically have stipulations that you have to follow, which may indicate how and where you should use them. By contrast, LOCs can be applied for whatever purpose you deem fit for your business.

  • More flexible than traditional term loans

LOCs have more flexibility than traditional loans. They allow you to draw down a portion of your credit limit, so you’ll only pay interest on the sum you took out.

  • Better business credit score

As your customers pay their invoices, your LOC is repaid. As such, it’s less likely for you to default on your payments. You can then build a good credit score, which you can use to your advantage should you need to get another loan.

    Recover at Your Own Pace

    With the continuing adverse economic effects of the pandemic on Australian businesses, the Government’s SME Recovery Loan Scheme couldn’t have come at a more opportune time.

    Under the Scheme, lenders provide finance at low rates while reducing their risks since the Government acts as a loan guarantor. Consequently, SMEs now have easy access to funding that they can use to help their businesses recover from financial setbacks. 

    There are several provisions and guidelines that SMEs and lenders must follow, making it vital to understand how it works and how you can maximise it for your business. 

    Looking for accessible and affordable scheme-backed loans? Earlypay offers competitive invoice-financing options that will help you recover amidst the pandemic. Contact us today to know more.

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