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Troubled SMEs ‘nowhere to turn’ when pandemic loan scheme ends


Without government guarantees, credit-impaired businesses will struggle to find finance, says one specialist lender.

By Philip King4 minute read

Troubled small businesses will have a tough time finding finance when a special pandemic loan scheme finishes on June 30, according to one of the lenders involved.


The end of the SME Recovery Loan (SRL) Scheme would mark a general retreat by risk-averse lenders or a sharp increase in the cost of credit, said the chief executive of Earlypay, Daniel Riley.

He said SRL, which was designed to assist small businesses hit by COVID or natural disasters, had made it possible for credit-impaired companies to fund their recovery at viable cost.

“When the scheme ends there is going to be general pullback from many lenders,” Mr Riley said.

“Some lenders doing unsecured or semi-secured loans, which have a fairly high historical default rate, will need to dramatically increase their pricing to make those loans viable without that scheme guarantee in place.

“I don’t think there will be any continuing loan guarantees for new loans, this is the end of it.

“There’s going to be a much tougher environment, just when we don’t need it.”

Treasury figures showed $6.4 billion has been loaned to more than 20,000 businesses with turnovers under $250 million since the scheme began in April 2021.

The government guaranteed initially 80 per cent, then 50 per cent, of each loan, which could be for up to $5 million per business for a period up to 10 years with an optional two-year repayment holiday.

The maximum interest margin allowable was 7.5 per cent and around two-dozen lenders, including all the big four banks and specialists such as Earlypay, Fifo Capital and Judo Bank, participated.

Mr Riley said they were encouraged by the guarantee to extend overdrafts or finance using equipment or – in the case of Earlypay – invoices as security.

“Some businesses with a level of credit impairment have been provided with business loans at a modest interest rate … without having to provide really any guarantee outside of the business assets,” he said.

He said Earlypay loans averaged $2 million on five-year terms, and the company had seen zero defaults.

With only a few days to run for SRL, interest rates rising, the ATO resuming tax debt collection, getting restructuring finance would become much harder.

Troubled businesses, particularly those with owners unwilling or unable to offer property as security, would have few options.

“Those businesses that haven’t already accessed the scheme, and with that similar level of credit impairment to their profile, are going to find it very hard to access funding without providing property security at anywhere the rates offered under the scheme,” Mr Riley said.

He said alternative security options, such as equipment or invoices, had been popular.

Invoice financing required goods or services to have been delivered in full and for the customer’s credit quality to be good.

“Those businesses would be able to access funding from an invoice finance provider on leveraging those unpaid invoices – even if their credit quality is poor, even if there is an ATO arrears,” he said.

“Equipment finance is another one – particularly sale and lease back. So if there’s unencumbered equipment within the business, with a loan secured specifically against that piece of equipment, not property or other business assets, it gives additional working capital at a very reasonable rate.

“Other forms of lending, so an overdraft or unsecured loan, I just don’t think would be offered to those businesses without that scheme guarantee.”

Troubled SMEs ‘nowhere to turn’ when pandemic loan scheme ends
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Philip King

Philip King


Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.

Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.

You can email Philip on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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