SME loan scheme that doesn’t lend expanded to not lend more

Straight out of Yes Minister this one:

Small employers will be given greater access to a $40 billion loan scheme to help them through the recession when the federal government overhauls its flagship JobKeeper payment this week.

The expanded loan scheme will offer companies four times the amounts previously allowed up to a new cap of $1 million, while extending repayment times from three to five years.

Treasurer Josh Frydenberg will announce changes to the lending program on Monday after small and medium businesses applied for only $1.5 billion from the original scheme even though it offered up to $40 billion.

The major banks are backing the easier rules for securing the loans and appear willing to lend to thousands more companies, with their risks reduced because half the loan value would be guaranteed by the Commonwealth.

“The expanded scheme will allow businesses to access more credit for a longer period of time,” Mr Frydenberg said in a statement ahead of the changes.

Australian Bankers’ Association chief Anna Bligh said the changes would open up the scheme to more small and medium businesses needing help.

In our experience, the problem is not demand. It is the banks. They do not want to lend the dough.

Everyone I know who has applied has spent months in limbo, waiting to hear back from banks that are consistently changing the rules around the scheme.

It was supposed to be unsecured then changed to secured mid-application.

It was supposed to be easy lending standards but changed to high mid-application.

It was supposed to be fast but turned into a time-devouring nightmare as calls weren’t returned, paperwork mushroomed and confusion reigned.

So, what to do with a scheme that won’t lend?

Make it not lend a lot more!

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. Know IdeaMEMBER

    A solution requires that you do something. This expansion of the loan scheme is something, hence it is a solution.

    Irrefutable logic.

  2. If you’ve been following this government, this outcome shouldn’t be a surprise.

    We get a big song and dance announcement followed by a failure to deliver is pretty much how it “works.”

    Bushfire survivors are still waiting for their promised cash, as is the arts industry who were belatedly included in the handouts.

    Even HomeBuilder has some restrictions like 3 month window to start the build to be eligible which apparently is impossible given all the development approvals required.

    When they introduce BlowJobber it will probably be restricted to au-pairs.

  3. kannigetMEMBER

    Why the insistence on repayment in 3 to 5 years? This just unnecessarily increases the assessment thresholds way out an decreases the potential profits the bank could make via interest.

    Assuming an interest rate of 3% at If you have to pay you $100K loan off in 3 years you need to make repayments close to 3.5K per month, so the loan had better result in greater than $4K a month in turnover…. 5 years drops it to 1.9K and 8 years to 1.2K

    The banks wont earn enough ( $4K over 3 years, $8k over 5 ) so will want a lot higher rate, making the viability even harder to achieve.

  4. Display NameMEMBER

    Are the smaller banks getting access to the funds as well?

    The big banks dont know how to lend to business anymore unless they have secured the loan against property. This was not always the case.

    • While I don’t disagree with your last point, in the current market who would make a loan to an SME without solid collateral? For a $1m loan, the time and expense (and risk) of making a proper business loan is simply not worth it.

  5. In the Australian,
    “Scott Morrison will offer guaranteed loans of up to $1m to about 3.5 million small businesses in a major ramp-up of stimulus as the government prepares to reveal that the economic outlook has deteriorated on the back of the Victorian COVID-19 outbreak”.

    The key word here is “Guaranteed” what do they actually mean by that ?

  6. In fairness the government going garuntor and extending terms to 5 years is a pretty decent amount of derisking for the banks…should loosen the purse strings a bit

  7. Last time I checked the last thing any cashflow constrained business needed was more debt.

    Revenue is what business needs. Revenue. Nothing else.

    • Small business can get 6 months credit on their BAS statements by not paying courtesy of the ATO – I think these are interest free.
      For the July BAS the ATO are now starting to ask questions about the impact and less likely to allow a deferral if no impact. It was a no brainer for ALL businesses to take advantage of that.

  8. Can't Socially Distance

    Who would loan money to a small business? Most of them are just service based and not require any capital investment past the initial fit out. If they need the loan for cashflow they’re basically insolvent.