Coronavirus rescue package: Scott Morrison to unveil business loan guarantee

Scheme set to be key part of government’s second-round coronavirus economic rescue package, to be announced Sunday.

The business loan scheme is designed to support small and medium-sized businesses, which have been hit hard by the virus outbreak. Picture: Hollie Adams

The Morrison government is poised to announce a loan guarantee scheme for the banking sector, as it ramps up its response to the rapidly unfolding economic crisis triggered by the coronavirus outbreak.

The scheme, foreshadowed by The Australian, is likely to be a key part of Scott Morrison’s second-round economic rescue package, to be announced on Sunday.

Its purpose is to ensure there is sufficient liquidity for small and medium-sized businesses, which have been hit hard by the virus outbreak.

The key part of the initiative is understood to be a taxpayer guarantee of 80 per cent of the loan, which will help insulate the banks from a spike in bad debts.

The guarantee will operate for a limited time, possibly around six months, to put a cap on taxpayers’ exposure.

The UK Government announced a similar scheme, called the Coronavirus Business Interruption Loan Scheme (CBILS), as part of its response to the coronavirus crisis.

The products offered by CBILS included overdrafts, invoice discount facilities, asset finance facilities and term loans.

Under the UK scheme eligible business must be UK-based with a turnover of no more than £45m ($90.5m), operate in an eligible industrial sector, and unable to meet a lender’s normal lending criteria for a commercial loan or other facility.

However, it must otherwise be seen as a viable business for the long-term.

The UK Government covers the first six months of interest payments, with the maximum size of the facility set at £5m ($10.5m) pounds.

The Australian scheme is believed to have been tied to loan repayment holidays announced by the major banks on Friday.

The Australian Banking Association announced a small business relief package on Friday, which will apply to more than $100bn of existing small business loans.

Depending on the take-up, the ABA said the package could put as much as $8bn back into the pockets of small businesses through a six-month deferral of loan repayments.

The banks subsequently announced enhancements for their own customers.