Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. Josh Frydenberg MP)Chapter 17 Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Bill 2020
Outline and context of chapter
17.1 The SME Lending Guarantee Bill gives effect to the Government's commitment to enter into risk-sharing agreements with financial institutions to ensure that credit continues to flow to SMEs so that SMEs can continue to meet their immediate financing needs during the uncertain economic conditions caused by the Coronavirus.
17.2 The SME Lending Guarantee Bill provides that the Minister may, on behalf of the Commonwealth, grant a guarantee to a financial institution in connection with loans made, or to be made, by the financial institution if granting the guarantee is likely to assist in dealing with the economic impacts of the Coronavirus.
17.3 The SME Lending Guarantee Bill further provides that the Consolidated Revenue Fund is appropriated for the purpose of meeting any liabilities that the Commonwealth incurs under those guarantees.
Detailed explanation of new law
17.4 The SME Lending Guarantee Bill provides that the Minister has the power, on behalf of the Commonwealth, to grant a guarantee to a financial institution in connection with loans made, or to be made, to SME entities. [Subsection 5(1) of the SME Lending Guarantee Bill]
17.5 The power to grant a guarantee is limited by the criteria that:
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- the Minister must be satisfied that it is likely to assist in dealing with the economic impacts of the Coronavirus - for example, the guarantee could assist in boosting confidence in lending by financial institutions to SME entities affected by the economic downturn as a result of the pandemic; and
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- the guarantee must be in connection with loans made, or to be made, by a financial institution that is a corporation within the meaning of paragraph 51(xx) of the Constitution.
[Subsection 5(2) of the SME Lending Guarantee Bill]
17.6 The grant of a guarantee must also be in accordance with the legislative rules. The Minister has the power to make rules as required or permitted, or that are necessary or convenient to give effect to provisions in the SME Lending Guarantee Bill. [Subsection 5(3) and section 8 of the SME Lending Guarantee Bill]
17.7 In addition to defining SME entity, these rules may include, but are not limited to, one or more of the matters outlined below:
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- the eligibility criteria for a financial institution to receive a guarantee;
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- the proportion of risk to be held by the Commonwealth and a financial institution subject to a guarantee;
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- the types and terms of loans subject to a guarantee; and/or
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- the maximum size of an individual loan subject to a guarantee.
17.8 The meaning of SME entity is prescribed by the legislative rules made by the Minister. [Definition of 'SME entity', section 4 of the SME Lending Guarantee Bill]
17.9 Financial institution is defined as a body corporate that is an ADI (short for authorised deposit-taking institution) for the purposes of the Banking Act 1959 , or a non-ADI lender within the meaning of the Banking Act 1959. [Definition of 'financial institution', section 4 of the SME Lending Guarantee Bill]
17.10 It is intended that guarantees will only be available for new loans made after the Government's announcement. In that context, loans made prior to the commencement, but after the announcement can be covered by a guarantee made under section 5. [Subsection 5(4) of the SME Lending Guarantee Bill]
17.11 The Consolidated Revenue Fund is appropriated for the purpose of meeting any liabilities the Australian Government may incur as a result of a guarantee to a financial institution. [Subsection 6(1) of the SME Lending Guarantee Bill]
17.12 The total amount of appropriation for meeting liabilities under the guarantee cannot exceed $20 billion. [Subsection 6(2) of the SME Lending Guarantee Bill]
17.13 The Minister has the power to delegate the powers or functions provided for in the SME Lending Guarantee Bill. [Section 7 of the SME Lending Guarantee Bill]
17.14 The Minister can delegate the power to grant a guarantee to:
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- the Secretary of the Department; or
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- an SES employee, or acting SES employee, in the Department.
[Subsection 7(1) of the SME Lending Guarantee Bill]
17.15 A person delegated with the powers or functions provided by the SME Lending Guarantee Bill must act in accordance with any directions of the Minister. [Subsection 7(2) of the SME Lending Guarantee Bill]
17.16 This delegation is appropriate in these circumstances and is provided to allow guarantees to be entered into in a timely manner to support the proper function of lending to SMEs in a time of economic uncertainty.
17.17 The SME Lending Guarantee Bill contains a simplified outline that summarises its operation. The simplified outline is only intended to assist readers to understand the legislative framework, but is not otherwise operational. For a detailed understanding, readers of the SME Lending Guarantee Bill will need to refer to the substantive provisions and explanation in this Explanatory Memorandum. [Section 3 of the SME Lending Guarantee Bill]
Application and transitional provisions
17.18 The SME Lending Guarantee Bill commences on the day after the Bill receives Royal Assent.