Access to the government’s Coronavirus SME Guarantee Scheme has been extremely limited, with only around A$1.7 billion of loan commitments under the scheme – less than 5 per cent of the scheme cap.
The Reserve Bank reports in its latest Bulletin that only 180,000 SMEs have accessed the scheme and the amount loaned is equivalent to around 0.5 per cent of outstanding SME lending.
Under the scheme, the government provides a guarantee of 50 per cent to SME lenders to support new short-term unsecured loans. The scheme, in theory, will guarantee up to $40 billion of new lending.
In July, the government made changes to the scheme, allowing funds to be used for a greater variety of purposes, increasing the amount that can be borrowed and extending the life of the scheme until June next year.
The RBA said that overall, small business demand for new loans appears to be weak, probably because businesses are reluctant to take on debt given heightened uncertainty about the economic outlook.
In a May survey conducted by the Australian Bureau of Statistics only around one in 10 businesses reported seeking additional finance as a result of the pandemic.
Measures to support business cash flow, such as JobKeeper and loan repayment deferrals, are also likely to have dampened immediate demand for credit.
In mid-July about 40 per cent of businesses told the ABS that they were accessing one or more support measures.
Rather than seek finance, businesses have cut expenses and investment, and paid down debt. In an ABS survey in July one in three small businesses reported that they used additional funds received through tax credits to repay debt.
At the same time, access to finance continues to be a challenge for small businesses. Notwithstanding apparent low demand for new loans in the current environment, small businesses continue to report difficulty in accessing finance.
The RBA said banks have tightened their lending practices and are more cautious about lending to businesses that have been significantly affected by the pandemic.
“Banks have indicated in liaison that much of this reflects the application of existing lending standards in an environment of weak economic conditions and great uncertainty,” the RBA said.
“In addition, banks are requiring a greater degree of verification of borrower’ information and some banks are cautious about ending to new customers.”
Around 70 per cent of businesses surveyed by the ABS in June reported a decline in revenue relative to the same time last year. Small businesses were twice as likely to record a decline in revenue as large businesses.
The RBA said small businesses have increased funding from non-traditional sources over the past decade but the non-traditional share is still very low at around 2 per cent of overall SME funding.