Banks race to roll out federal government’s $40bn SME loan guarantee scheme

Banks are working fast to implement the government’s loan scheme, while drawing up plans to keep their branches open.

ABA boss Anna Bligh said the small business loan scheme would provide “strong support” to SMEs. Picture: AAP/Paul Braven.

Banks are figuring out how to best implement the federal government’s $40bn business guarantee loan scheme, as they rush out pandemic contingency plans to keep branches open in states where non-essential services are being locked down.

The federal government unveiled the new scheme on Sunday which sees it guarantee 50 per cent of new loans issued by eligible lenders to small and medium businesses. It is part of a spate of measures aimed at ensuring businesses can withstand the severe economic fallout caused by the COVID-19 pandemic.

The coronavirus SME Guarantee Scheme is targeted at providing unsecured loans of up to $250,000 to businesses, speeding up access to working capital to help them through the coronavirus impact.

The establishment of the small business loan scheme was foreshadowed by The Australian.

The UK government announced a similar scheme, called the coronavirus Business Interruption Loan Scheme, as part of its response plan to the coronavirus crisis.

The Australian Treasury’s financial services taskforce was understood to be holding a phone hook-up on Sunday between those running business banking divisions and the Australian Banking Association to discuss the start of the new loan scheme and ensure a smooth rollout.

The new scheme comes as NSW and Victoria brace for lockdowns of non-essential services in coming days, and banks enact their plans to keep as many branches as possible open in those states.

That involves sorting out the deployment of available staff, particularly as schools are closed in Victoria on Tuesday and are at risk of the same fate in NSW.

Treasurer Josh Frydenberg on Sunday said since the government had announced its first coronavirus stimulus package the global and domestic economic environment had deteriorated.

“We now expect the economic shock to be deeper, wider and longer,” he added, noting a focus on ensuring a “bridge to recovery”.

Mr Frydenberg is having daily discussions with the banks as the pandemic hits the business community.

The second tranche of measures announced by the government on Sunday amount to $66bn, taking the stimulus total to $189bn.

In their entirety the stimulus measures account for about 10 per cent of annual economic output.

In response to the new business loan scheme, Commonwealth Bank of Australia said it would make up to $10bn available in additional unsecured credit to support small and medium businesses.

It will charge rates that are 500 basis points lower than current unsecured business loan rates, meaning the annual rate will sit at about 4 per cent. Repayments are not required for six months and no interest applies unless the loan is drawn down.

“By acting quickly, we can soften the impact of the coronavirus on small businesses across the country and the millions of Australians who depend on them for employment,” CBA chief executive Matt Comyn said.

“We stand shoulder to shoulder with the government, the Reserve Bank, and the wider business community to produce the most effective package of measures on a larger scale and implemented faster than ever before.”

CBA has also been talking to Qantas and Virgin about taking on staff to help it process higher loan volumes.

It is unclear, though, if all the banks have worked out how they will implement the new loan scheme and conduct credit assessments on borrowers.

An ANZ spokesman said: “We are supportive of the broad package and are working closely with Treasury through the detail.”

Treasury is said to have told banks they should make a commercial decision on approving loans under the new business scheme and to look through the current period.

A senior banker, who declined to be named, said: “We have to come to a view and see through that shock, looking at the fundamental business.”

He also said the banking regulator had provided “helpful” measures around how small business loans could be treated from a capital perspective.

But Shaw and Partners analyst Brett Le Mesurier questioned whether under-pressure businesses required more debt and how banks would adequately assess loans.

“It’s incredibly uncertain,” he said. “Shareholders will wear the other half (of the loan), so you still have to be very careful with lending practices. And how do you establish how the loan can be repaid when you have little revenue and the duration of the lockdown is unknown?

“Once the lockdown is relaxed there is uncertainty about the future revenue and the business will have more debt as it tries to recover.”

Mr Le Mesurier highlighted there was “no easy solution” but said many businesses required equity over debt.

“Debt can be helpful for those that have minor cashflow issues but for those whose businesses are severely and adversely affected debt is not the answer.”

Westpac’s acting CEO Peter King said the new loan scheme would provide “significant support” to small and medium businesses.

“We all have to put our shoulder to the wheel,” he said, adding that the bank was also supportive of the granting of access to superannuation for those in financial hardship.

“This scheme will have minimal impact on superannuation in the medium to

long-term and will provide much needed support for many Australians … At the same time, it is a sensible measure to halve the draw down rate of superannuation to 2 per cent.”

National Australia Bank CEO Ross McEwan said it was a “very welcome” package of measures for small business and reiterated that NAB had strongly supported the setting up of the new business loan scheme.

“The Coronavirus SME Guarantee Scheme in particular will be critical in helping banks such as NAB support businesses who need a quick cash flow injection to stay open and keep people in jobs,” he said.

ABA boss Anna Bligh said the small business loan scheme, combined with measures announced by banks last week, would provide “strong support” to small businesses affected by the COVID-19 pandemic.

Last week, the ABA announced businesses impacted by COVID-19 would have loan repayments paused for six months, putting about $8bn back into their pockets.

The major banks followed with notable rate cuts on some business loans and vowed that mortgage customers feeling the pinch would also receive repayment holidays of up to six months.

The RBA has also provided banks with a $90bn business loan funding facility targeted at small businesses, and a program for the non-bank financial sector, small lenders and the securitisation market.

Centennial Asset Management’s Matthew Kidman told Sky News’ Business Weekend he expected unemployment would “skyrocket” as the pandemic swept through the economy.

He also questioned how the two tranches of stimulus would work without a “go hard, go early” approach to locking down the population.