ScoMo’s SME ‘corona loan’ scheme all spin no substance

A few months back, the Morrison Government expanded its ‘corona loan’ scheme designed to get cheap government-backed money into the hands of struggling small to medium-sized enterprises (SME):

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.

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.

The problem is, hardly any loans have actually been written:

The government’s SMEG loan program has been plagued by poor take-up, with just $1.7 billion in loans to 17,652 businesses since the $40 billion funding initiative was announced in March…

While 44 lenders have been approved to use the scheme, smaller players have complained of the uneven playing field created by the Term Funding Facility, a pool of cheap money established by the Reserve Bank which loans funds at 0.25 per cent to authorised deposit-taking institutions.

Treasury is currently consulting on how to improve the loan scheme, and plans to relaunch it on 1 October as JobKeeper is reduced:

The relaunch of the Coronavirus SME Guarantee loans scheme – known as the SMEG – is poised to include a much broader range of financing when it is launched next month after a lukewarm response to the first scheme from both lenders and borrowers.

The revised scheme will include secured lending and open the door to asset financing, debtor finance and commercial real estate lending, but has stalled after Treasury indicated it wanted the loans issued under the program capped at the same rate…

Among the key changes to the revised scheme is the ability of lenders to accept any security other than residential property. This change will allow lenders to issue more than unsecured term loans, including asset and equipment finance and balance sheet funding…

The scheme… has been stymied by the program’s strict criteria and a lack of appetite from lenders and borrowers…

In our experience, the problem is not demand, it is the banks. They simply do not want to lend the money.

Everyone we 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.

The scheme needs a complete overhaul. Hopefully the relaunch next month irons out the kinks.

Unconventional Economist
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