Business groups have welcomed an overhaul of the $40bn loan guarantee program, which will now allow them to use government-backed finance to expand their operations rather than just pay for regular expenses.
Under the changes announced on Monday by the treasurer, Josh Frydenberg, from October guarantees will be provided on loans up to $1m, up from $250,000, and for five-year terms, up from three.
The small business loan guarantee, announced in the second stage of economic supports on 22 March, was quickly superseded by jobkeeper, with businesses suffering from a Covid-19 downturn more keen to access fortnightly wage subsidies of $1,500 per employee than the loan scheme.
The program helped cut business loan interest rates from about 9.5% to 4.5% but was massively undersubscribed, with just 15,600 loans worth a total of $1.5bn issued – around half of which (8,600 loans worth $778m) was issued by just one bank, the Commonwealth.
The second phase of the scheme will start on 1 October and will be available until 30 June 2021.
The president of the Commercial and Asset Finance Brokers Association of Australia, David Gandolfo, said uptake had been limited because the scheme was “purely for cashflow” and “didn’t allow [businesses] to invest”.
“The original loans had a three-year term – if you took up $250,000 at 4.5% interest with no repayments for six months, the remaining repayments were $9,000 [a month],” he told Guardian Australia.
“That’s a fairly hefty repayment, and it didn’t really appeal to a lot of people to take a loan like that.”
Gandolfo said banks had applied the same credit risk criteria as regular unsecured loans, making them “hard to get”. The changes now allow secured lending, which will “make borrowers more attractive to the bank”.
Gandolfo said the loans would only go to “those with a viable business”, most likely in growing sectors such as transport, logistics, food distribution, plant and equipment hire and manufacturing.
Businesses in “serious distress that have been seriously impacted” by Covid-19, such as restaurants, cafes and gyms, would “still find it very difficult to get bank funding because of their risk profile”.
The chief executive of the Council of Small Business Organisations of Australia, Peter Strong, said the changes were a “good decision”.
When the first iteration of the scheme was announced in March, “jobkeeper became the big focus of business – [the loan scheme] just wasn’t high on people’s list, we were looking to survive rather than grow”.
“Now they’ve got a better handle on what’s happening, and what’s in front of us, we’re seeing now there are people out there seeing opportunity to do things they couldn’t do before.”
The chief executive of the Commonwealth Bank, Matt Comyn, said the overhaul was “a welcome development by the government as it provides small businesses with access to a deeper and long-term pool of financial support which will be necessary to help underpin the recovery and provide [small and medium enterprises] with the confidence to plan and invest for the future”.
Frydenberg said the government would “continue to support small businesses as they seek to rebuild, adapt and create jobs on the other side of the coronavirus crisis”.