Finance Finance News Small businesses given a leg up as government extends loan program

Small businesses given a leg up as government extends loan program

The small business loan guarantee scheme has been extended.
The federal government has extended its loan guarantee program for small businesses. Photo: The New Daily
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The federal government will extend a modified version of its small business loan guarantee program in a bid to help SMEs get back on their feet.

But the poor response to the first round of guarantees has raised questions about the effectiveness of an extension.

Treasurer Josh Frydenberg announced the federal government will guarantee 50 per cent of new unsecured loans up to $1 million made to small businesses from October 1.

The guarantees form the second phase of the Coronavirus SME Guarantee Scheme that was announced in March.

Under the first phase of the program, the government guaranteed 50 per cent of unsecured loans up to a maximum value of $250,000, to be paid over three years.

These loans were to be used exclusively as working capital – effectively allowing businesses to only borrow money to help with their cash flow.

Although $40 billion was set aside to fund the first phase of the program, only $1.5 billion of that money was accessed by small businesses.

But Australian Small Business and Family Enterprise Ombudsman Kate Carnell expects the second phase will experience greater demand – thanks to fewer restrictions, larger loan amounts, the inclusion of secured loans, and longer repayment times. 

“Phase two addresses a range of the issues that we put forward as being impediments to the first tranche of loans,” she said.

“I see phase two as being not just loans for working capital to keep your head above water for a time, but to expand it to businesses that want to invest.”

‘Failed time and time again’

Shadow treasurer Jim Chalmers however criticised government for using “leftover funds from [a] grossly under-subscribed scheme” to underwrite larger loans.

Dr Chalmers said in a statement that support for small businesses has so far been “poorly targeted” – noting the most pressing issue to be addressed was the future of JobSeeker and JobKeeper.

“Scott Morrison and Josh Frydenberg have failed time and time again to get business incentives right,” he said.

“The best way for the Morrison government to get behind businesses is to end the uncertainty surrounding the future of JobKeeper.”

More support on the cards

Mr Frydenberg’s announcement comes amid speculation the federal government will extend its JobKeeper wage subsidies beyond September.

Though details remain scarce, Prime Minister Scott Morrison said on Monday that businesses whose turnover has yet to recover would “get continued support” – suggesting JobKeeper will be extended for companies badly affected by the pandemic.

Deloitte lead partner for macroeconomics Kristian Kolding said it would make sense for the government to go down that route. 

ABS data suggests that 29 per cent of small businesses only have enough cash on hand to continue trading for three months in the current economic climate.

Together with federal government data, the insights from ABS suggest 240,000 businesses in the hospitality, professional services, and transport sectors are at high risk of collapsing once fiscal support is unwound in September, Mr Kolding said.

That translates to roughly 10 per cent of all Australian businesses.

Mr Kolding cautioned their closures would lead to “hundreds of thousands of people falling into unemployment” in addition to the thousands already forced out of work by the pandemic.

“What we would like to see is an extension and refinement of JobKeeper,” he said.

We’d like to see an extension of support for businesses in need.

“However there are a number of industries and businesses that aren’t in need any more, and they should be put back in an environment where they have to pay their own wages.”