A significant difference between phase one/two and Thursdays revamped package is that the government will increase the proportion of the loan it will guarantee from 50 per cent to 80 per cent.
Josh Frydenberg offers cheap money to COVID-troubled businesses.
The loans are actually provided by banks that sign up for the government package. The lenders are able to offer a discounted interest rate because the partial government guarantee reduces the risk to the banks.
Thanks to the initial 50 per cent guarantee banks could offer those that signed up an interest rate of around 4.5 to 5 per cent on a small business loan – about half the rate of a normal SME unsecured loan.
Raising the guarantee rate from 50 per cent to 80 per cent may not result in the interest rate on these loans falling much further. At this stage the banks are not providing that detail.
When the first government loan scheme was introduced in March last year, its fair to say that it wasnt embraced by the major banks. At the time only the Commonwealth Bank cheered it on, the ANZ was publicly against signing up and Westpac and National Australia Bank were not ardent supporters but kept their lack of enthusiasm quiet.
A year later and they have all learned that it isnt a good look to be seen not embracing Team Australia.
On Wednesday night Frydenberg gave the big four bank bosses the heads up about the new guarantee scheme. By Thursday morning, their publicity departments released government cheerleader statements in support.
That doesnt mean they are about to sign up a truckload of new loans under Mark III. Indeed, the most likely scenario is that borrowers already using the scheme will migrate to the updated package.
And it hasnt been just the banks that didnt partake of the governments generous cut price interest rate scheme. When it was introduced last year, the small businesses that had been hit by the pandemic were wondering whether they could stay afloat and not in the mindset of taking on additional debt.
By the time the package was revised later in the year, COVID-affected SME businesses had already been bailed out by the governments JobSeeker package and the economy was already showing signs of improvement.
So most didnt need to borrow more money.
Additionally, some of the businesses that would be eligible for the latest loan package will also receive some assistance from the $1.2 billion tourism package the government also announced on Thursday.
The details of the tourism package are a bit vague but involve the government underwriting cheaper airfares to holiday destinations, with the aim of encouraging Australian travellers to boost the local economies that usually rely on overseas tourists.
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