Small Business Lending in Australia Halts as New Lockdowns Announced


Whilst much of the western world opens up, Australians are struggling to comply with the on-going, perpetual Covid restrictions that wrestle the nation. A surge in cases is believed to be attributed more to the Delta variant than rule-bending, though Australians have reported to become increasingly restless.

Lockdown seemingly hasn’t been enough to prevent the spread of the Delta variant, though, with it being highly transmissible. Whilst transmission seems inevitable, next door neighbours New Zealand disagree, who are currently locking down over one single Covid case.

Of course, it depends on where you’re living in Australia, as much of the north has very few restrictions, whilst Melbourne and a few other cities feel the brunt of much of the lockdown. With New South Wales entering another lockdown last week, they have increased the on-the-spot fine to an eye watering $3,700 for rule breakers.

Now, much of Australia’s populace is back in a situation of empty streets and deserted high street shops – a situation that isn’t going to help their struggling SMEs.

SME Loan Guarantee Scheme

Australia was applauded for its fiscal response to Covd-19, in which it had injected a lot of cash reserves – saved up from their decades of growth – in which they offset a lot of the economic crash caused by lockdowns.

A key driver behind this fiscal policy was the SME Loan Guarantee Scheme. The scheme increased lenders’ ability to supply cheap credit to ensure SMEs got more help and wasn’t rejected by loan applications. The government guarantee was 80% of the loan amount, and repayment holidays lasted for up to 2 years.

However, this scheme ended on June 30th 2021 – a period in which Covid cases were relatively low. In August, lockdowns are back, SMEs struggle to return, but the SME Loan Guarantee Scheme is nowhere to be seen…

The government has introduced a phase 2 in response to phasing out the Guarantee Scheme; a SME Recovery Loan Scheme, which is intended for SMEs that received JobKeeper in the March quarter (or were affected by floods in NSW in March). Whilst this scheme doesn’t apply to every SME, it is set to continue until the last day of 2021 as per new updates and is now named SME Recovery Loan Scheme.

Small business loan providers in Australia

Instead of relying solely on the government, SMEs have had to turn to private funding. Whilst credit has been easier to attain at high street banks than in the past – with around 70% approval rates during the pandemic with an average loan of $320,000 – it is those with subpar credit scores that are hung out to dry. Small business loans in Australia are just hard to come by.

$5 billion per month, with 500 new loans each day for 250 days have been issued by Australian banks to SMEs. This is far superior than many of Australia’s peers, and is an important way to attain cheap ‘small’ business funding for companies.

Those with less than perfect credit history, or have only recently begun trading, will have a different story to tell. Instead, they have had to visit online alternative lenders who specialise in lending quick money to businesses that don’t have a compelling credit history.

Such business loans in Australia (SMEs) have approval ratings in the high 90s percentile prior to covid, with approvals and funding being issued within 1 to 2 days usually. However, even the automated and forgiving programming of the application processing at these companies hasn’t held up approval ratings perfectly during the pandemic. 

As reported by, small loan providers in Australia have limited their risk by favouring small business loans over larger loans. This, though, is a welcoming approach, given that the average SME loan issued by banks was $320,000 – an amount far beyond what many firms need.

Many SME owners simply need the reassurance that they can dip in $5,000, or $20,000, in the event of a cash flow emergency or desperate expansion project. Giving priority to smaller loan amounts isn’t in the interest of high street banks, because of the large amount of administration required to issue a single loan – lots of personnel costs, loan underwriting, and so on.

Online small business funding (alternative lenders), on the other hand, have a very low-cost and automated approach, meaning they’re actually favouring smaller loan amounts. Risk can be diversified across many lenders, as opposed to overweighting large loans to single businesses.

There is no doubt that the intuitive software used for the alternative lending sites are factoring new data on industries to avoid system risk. For example, it’s better to loan a hairdresser, grocery store, and sports club funds than three bars. Before Covid-19, this systemic risk would be negligible, but today it’s extremely relevant to lockdowns and who bears the brunt of restrictions.

This could certainly be an unknown factor in the likelihood of approval, as does credit. Though, many SMEs will enjoy the immediacy in finding out the verdict with online lenders – a matter of hours – as opposed to waiting weeks, if not months, for a verdict on a bank loan.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.