A government-backed loan scheme which was supposed to help small businesses survive the coronavirus crisis has been branded a failure, after only $1.7 billion of the $40 billion loan pool was used.
The Morrison government's Coronavirus SME Guarantee Scheme was designed to make lenders more willing to provide credit to small businesses during the pandemic, with government underwriting 50 per cent of loans provided under the program.
Treasurer Josh Frydenberg said the scheme was providing an "unprecedented" level of support to businesses, and would help them "successfully adapt to the new COVID-safe economy".
But less than 5 per cent of the package has been used, nearly six months after it was announced.
Labor's small business spokesman Brendan O'Connor said the program was a failure.
"The Morrison government promised small businesses a $40 billion loan guarantee scheme yet has only spent $1.7 billion, less than 5 per cent," Mr O'Connor said.
"What small businesses need are measures to help support them and address the collapse in business investment, however what they have gotten is an announcement from this government, but a failure to deliver."
It's prompted calls for the scheme to be reformed.
Council of Small Business Organisations Australia chief executive Peter Strong blamed the low uptake on a mix of unawareness and a lack of engagement from the banks.
"We need to rethink how we find business growth," Mr Strong said.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the way the loans were structured did not work for many small businesses.
The loans ran for three years and small business owners were unable to make payments within the first six months, even though interest was compounding in that time.
While the scheme will be changed from October to run over five years, and allow businesses to borrow up to $1 million, Ms Carnell said businesses were hesitant to take on more debt.
"The issue here is confidence that they'll be in a position to pay it back," Ms Carnell said.
Ms Carnell said the government needed to reconsider offering income contingent, or HECS-style, loans to overcome the confidence issue.
Under this style of loan, repayments would be tied to rising turnover.
Ms Carnell believed businesses would be more likely to take these loans on, as they were less likely to be caught with money they could not repay if there were further lockdowns.
"Small businesses are going to need to borrow money to get their businesses up and running again and we've got to help them find a way to do that," Ms Carnell said.
Professor Bruce Chapman, the architect of the HECS scheme, had previously argued income-contingent loans should be offered as part of the transition out of JobKeeper.
He said the low take-up of the government-backed loans was "unsurprising".
"The reason is this is a major period of uncertainty and banks even with the guarantee of 50 per cent repayment will be unlikely to be very heavily engaged in this because there's so much concern about default," he said.
Professor Chapman said Australia faced a major credit problem, and income-contingent loans could be part of the solution.
"An extraordinary crisis calls for new thinking," Professor Chapman said.
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