The federal government on Wednesday revamped the SME Recovery Loan Scheme to cater - finally - to every faintly credit-worthy SME business knocked around by the pandemic. Being almost all of them.

But will the upgraded SME Recovery Loan Scheme be widely promoted by lenders to all SMEs, or will it once more be used to refinance dodgy loans of current business borrowers?

The much-hyped and notionally A$40 billion SME Guarantee Scheme, which started in late March 2020 closed to new applications at the end of June 2021. 

In clipped language in its recent Statement on Monetary Policy, the RBA noted that "overall, take-up of the scheme was modest, with around $6.5 billion of loan commitments made to around 66,000 businesses."

Commonwealth Bank funded $1.9 billion of loans under the scheme to around 20,000 businesses, it disclosed last week; and CommBank remains the only bank to even mention this scheme in reporting.

In April, the government introduced the SME Recovery Loan Scheme. This form of the scheme poorly designed -being confined to those that had received JobKeeper payments in the March quarter of 2021.

As of last night, the Treasury listed only 18 banks, non-banks and fintechs (notably Judo) as participating lenders. Among the absent are Bendigo, BOQ and most of the mutual banks.

SME Recovery Loan Scheme

Borrowers can access up to $5 million in total. Loans are for terms of up to 10 years, with an optional repayment holiday period. The Australian Government guarantee will be 80 per cent. Lenders able to offer borrowers a repayment holiday of up to 24 months. Loans can be used for a broad range of business purposes, including to support investment. Loans may be used to refinance any pre-existing debt. Loans can be either unsecured or secured (excluding residential property). The interest rate on loans will be determined by lenders, but will be capped at around 7.5 per cent.