The Coronavirus SME Loan Guarantee Scheme – Phase 2 Explained

Full Breakdown Including Details of the SME Loan Guarantee Program, Who’s Eligible and How to Apply

Following the COVID-19 outbreak in early 2020, the Australian Government announced various initiatives to support SMEs through a period of severe economic disruption. One of these was the coronavirus SME guarantee scheme. Launched on 23 March 2020 and running until 30 September 2020, phase 1 of the SME Guarantee scheme supported unsecured working capital loans up to $250,000 with the Government securing 50% of the value of the loan. 

The scheme came under criticism however, as it missed the mark for both borrowers and non-deposit taking lenders. The Government did respond and made some improvements for phase 2, which commenced on 1 October 2020 and runs until 30 June 2021.

In this article we run through the crucial differences between phase 1 and phase 2 of the coronavirus SME guarantee scheme and provide full details of how to apply for funding under phase 2 of the scheme.

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The SME Guarantee Scheme – Phase 1 vs Phase 2

SME Guarantee Scheme, Phase 1SME Guarantee Scheme, Phase 2 
  • 50% of the loan is secured by the Government.
  • Unsecured business loans only (i.e. no security required from the borrower for the other 50%).
  • Value of the loan cannot exceed $250,000.
  • Loan terms up to 3 years, with a 6-month payment holiday guaranteed.
  • 50% of the loan is secured by the Government.
  • Unsecured and secured loans possible (except for residentially secured loans, i.e. asset financing is possible).
  • Value of loans up to $1,000,000
  • Interest rates capped at 10% (wth margin of allowance for variable rate loans).
  • Loan terms up to 5 years, 6-month payment holiday at discretion of lender.

Phase 1 of the coronavirus SME Guarantee Scheme supported 18,000 Australian SMEs to the tune of around $1.7 billion. Though with the total support package confirmed at $40 billion, the scheme arguably underperformed its early expectations. One of the biggest barriers to performance was that only deposit taking institutions (i.e. banks) were able to benefit from cheaper funding from the Reserve Bank of Australia. Companies that specialised in just lending, who are traditionally much faster in processing business loan applications, were not able to benefit from cheaper sources of funding. Making it difficult to honour the 6-month payment holiday for borrowers and provide the cheap level of funding they would expect.

This hasn’t been addressed directly in phase 2 of the scheme (it’s still only banks that can benefit from cheaper funding) but by incorporating both secured and unsecured loans, raising the maximum value of the loans to $1,000,000 and increasing the term of the loan to 5 years, it has provided more flexibility for both borrowers and lenders alike. The raise to $1,000,000 particularly helps firms who are often caught in the middle of initiatives aimed to support small SMEs and the benefits a company can enjoy as a large multi-million dollar turnover business.

Key Terms of the SME Loan Guarantee Scheme – Phase 2

To recap, participating lenders are offering SME guaranteed loans under the following terms in Phase 2 of the program:

  • Loans can be used for virtually any business purposes, including to support growth/investment.
  • The size of the facility has increased to $1 million in total.
  • Loan terms are now for up to 5 years. A repayment holiday is no longer required but can be issued at the discretion of the lender.
  • Loans can be either unsecured or secured (excluding residential property).
  • The interest rate on loans is still determined by lenders, but are now capped at around 10%. Small levels of flexibility are OK for interest rates on variable rate loans (should central bank interest rates increase over time).

It must be noted that whilst the Government is providing a guarantee for the loan this is not a Government SME loan.  The decision on whether to extend credit and the ongoing management of the loan remains with the lender. However, with the increased support through the SME Loan Guarantee Scheme the Government expects lenders to look through the current economic conditions and make sensible lending decisions based on the usual performance of the business and on the basis the Government will provide a guarantee for 50% of the loan.

In phase 1, the Government was encouraging lenders to provide facilities to SMEs that only have to be drawn if needed by the SME. So there was a preference for lending solutions such as a revolving line of credit as opposed to a straight up small business loan. A business line of credit is supplied by a number of the major SME lenders including Prospa, who are also an eligible lender in the Government SME Loan Guarantee Scheme. 

Phase 2, whilst still encouraging these types of facilities, has expanded to encourage a number of secured facilities too. These could include fit out finance, asset finance or any secured loan which isn’t residentially secured.

Who’s Eligible for a Loan Under the Coronavirus SME Guarantee Scheme?

All active Australian businesses with a turnover of less than $50 million in the previous financial year, or expected turnover of less than $50 million in the current financial year are eligible to apply for a Government SME loan. This includes individuals who are self-employed individuals and not-for-profit businesses.

Loans no longer need to be used just to support current and upcoming cash flow requirements – business expansion is a perfectly valid reason to apply for a loan through the SME guarantee scheme in phase 2. The only requirement is that loans, as you would expect, must be used for business purposes only. The Government has instructed lenders to satisfy themselves of this by:

  • Lending through a designated business product.
  • Seeking a declaration from the borrower.
  • Other means acceptable to the lender.

Lenders can offer any product deemed suitable for these purposes, with the exception of credit cards. Businesses are entitled to more than one loan under SME Loan Guarantee providing the total value of all facilities does not exceed $1,000,000. Businesses who benefited from phase 1 of the scheme are equally capable of benefiting from phase 2 of the scheme as well.

SMEs who would like to apply can apply through who work with a wide array of participating lenders in the scheme or contact one of the participating lenders directly. Participating lenders are required to consider applications from new customers as well as their existing customer base.

How Long is the Government SME Loan Guarantee Scheme Open?

Government SME funding applications for phase 1 were available between 23rd March 2020 – 30 September 2020.

The Australian Government’s SME Loan Guarantee Scheme Phase 2 opened on 1 October 2020 and will run through to 30 June 2021.

Which Lenders are Participating in the SME Loan Guarantee Scheme?

The Government is working with 39 participating lenders as it stands: 

  • ANZ
  • Banjo
  • Bank Australia
  • Bank of Queensland
  • Bendigo and Adelaide Bank Ltd
  • Bigstone Lending
  • Commonwealth Bank of Australia
  • Community First Credit Union Limited
  • Credabl
  • Custom Service Leasing Pty Ltd
  • Earlypay
  • Fifo Capital
  • Finstro Securities Pty Ltd
  • Flexirent Capital
  • Get Capital
  • Heritage Bank Limited
  • Hume Bank Limited
  • IQumulate Premium Funding
  • Judo Bank Pty Ltd
  • Liberty Financial
  • Metro Finance Pty Ltd
  • Moneytech Finance
  • Moula Money
  • National Australia Bank Limited
  • Pepper
  • Prospa (#1 rated online lender on SmallBusinessLoansAustralia)
  • Queensland Country Bank Limited
  • Regional Australia Bank Ltd
  • Social Enterprise Finance Australia
  • Southern Cross Credit Union
  • South West Credit Union
  • Speedy Finance
  • Suncorp-Metway Limited
  • The Mutual Bank
  • TrailBlazer Finance
  • Unity Bank
  • Volkswagen Financial Services Australia
  • Westpac Banking Corporation
  • Zip Business

If you’re an eligible SME and would like to begin your application for the Government SME Loan Scheme you can do it right now with Prospa. Prospa is the largest and most respected online lender in Australia, with a 4.9 / 5 TrustScore on TrustPilot based on over 5000 SME reviews. If your business requires quick access to capital, Prospa is used to providing a lending decision and releasing funds in under 24 hours.

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