A Small/Medium Enterprise Loan Guarantee Scheme has been introduced by the Victorian Government which will provide a guarantee of 50% of unsecured loans to SMEs (turnover less than $50 million) with the following criteria:
Maximum loan of $250,000
Maximum term of 3 years
No repayments for the first 6 months
Unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan
Lender’s Rules still apply
Loans will be subject to lenders’ credit assessment processes with the expectation that lenders will look through the cycle to sensibly take into account the uncertainty of the current economic conditions.
Set up a Facility
As part of the loan products available, the Government will encourage lenders to provide facilities to SMEs that only have to be drawn if needed by the SME. This will mean that the SME will only incur interest on the amount they draw down. If they do not draw down any funds from the facility, no interest will be charged, but they will retain the flexibility to draw down in the future should they need to.
Lower Interest Rate
Each lender will determine the interest rate applicable, but most banks are reducing their interest rates below what the current interest rate is for SMEs. Some other fees may apply so you will need to check with your bank’s lending policy.
When does it start?
The Scheme will commence by early April 2020 and be available for new loans made by participating lenders until 30 September 2020.
Some arrangements seen to date allow a 6 month moratorium on repayments but require the balance to be paid over 3 years with interest. On a $250,000 loan at only 1% interest, this could be as much as $10,300 per month, which is OK if the loan has generated future income, but the repayments may be a bit steep if the come-back is slow. You need to do some budgeting and forecasting to make sure that this type of loan works for you.
Advice If you need advice on budgeting and forecasting on on the Small/Medium Enterprise Loan Guarantee Scheme, you can contact Noel or Amanda of May Klye & Associates on (03) 9585 7555 or firstname.lastname@example.org