The Federal Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme was introduced to support up to $40 billion of lending to SMEs, including sole traders and not-for-profits, but reports are coming in that banks are making it very hard to access and knocking back many.
The Fed's SME Guarantee Scheme is low-risk for banks, but will they play ball?
(image thanks to Money Week)
Under the Scheme, announced as part of the Federal Government’s stimulus packages by Prime Minister Scott Morrison, the Government guarantees 50 per cent of new loans issued by eligible lenders to small-to-medium enterprises, which our industry is mostly comprised of.
The purpose is to enhance lenders’ willingness and ability to provide credit, supporting many otherwise viable SMEs with turnovers up to $50 million, to access vital additional funding to get through the impact of Coronavirus. The maximum total of loans per borrower is $250,000, with a six-month repayment ‘holiday’ at the start. The loans are also unsecured – houses and other assets are not put on the line. The maximun loan repayment period is three years.
However, reports are coming in to this publication of knock-backs and bureaucratic obfuscation. A small business accounting firm told us: “…six of our clients have been knocked back for this scheme – it seems impossible to get it through the banks.”
Another, a member of the print and signage industry, says: “I applied early on and was refused. They invited me to re-apply and I was presented with a 30-page form to complete with inane questions such as ‘do you think your business will improve after the coronavirus situation?” What kind of question is that because currently it is zero!”
Another applicant expressed surprise at the interest rate he was quoted: “Much higher than pre-coronavirus rates.” If this is the case, it must surely further tarnish the banking industry’s already battered reputation as part of Australian business and society and tends to smack of profiteering in the face of the worst health crisis experienced in modern times.
What more do banks want?
It seems some of the 39 banks and lenders approved for the scheme are treating loan applications as normal everyday commercial credit requests, despite that 50% of what they lend is Government-guaranteed up to a total of $40 billion and, presumably at the banks’ request, the Australian Financial Complaints Authority has had its wings clipped by limiting its ability ‘to consider decisions made by the lender about whether to provide a loan (and the amount of the loan) under the Coronavirus SME Guarantee Scheme.’ In other words, if you are knocked back for a bridging loan under the scheme, the AFCA is unlikely to consider your complaint.
The Federal Government appears to have come up with a good recovery scheme that requires the support of a major player in our economy and is willing to take half the risk. However, from these incoming reports, it would appear that the other half of the equation – banks - are not playing on the same team – or at least some of the major ones.
No one expects banks to splash money around willy-nilly (although the Banking Royal Commission showed that some did impose questionable, and even fraudulent loans on some people), but the world we have inhabited for the past three or four months is a whole new ball game and requires new thinking with a positive eye on recovery – not the traditional crusty old bank obdurate practices.
Listen up Lenders! These businesses were viable, profitable and hard-working enterprises until the economy was all but shut down. They are the backbone of every state’s economy and their survival is critical to re-creating a new economy post-coronavirus. As the economy re-opens, SME ‘A’ will turn to SME ‘B’ who will turn to ‘C’ and so on and, by sweat and occasional tears, oil the gears of recovery. In the signage and display sector, some will even do work for banks and governments. During the crisis some have contributed pro-bono or at small profit to make PPE kit – masks, visors, scrub suits and so on. What’s wrong with you?
Half of the loan is guaranteed by the Government anyway and interest is only payable on the drawn-down amounts – no draw-down = no interest.
If ever a senior lending officer tests positive to the virus and is rushed to hospital, they should reflect on the immediate and self-sacrificing work of the health care workers to save their lives and then maybe, just maybe, take that as an example and quickly approve all reasonable applications under the Government SME Guarantee Scheme, thereby doing your bit to ensure small business survival for so many Australians and their families.