The government stimulus gift that hardly anyone wants

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A significant difference between phase one / two and Thursday’s revamped package is that the government will increase the proportion of the loan it guarantees from 50 percent to 80 percent.

Josh Frydenberg is offering cheap cash to businesses struggling with COVID.

The loans are actually provided by the banks that subscribe to the government program. Lenders are able to offer a reduced interest rate because the partial government guarantee reduces the risk for banks.

With the initial 50 percent guarantee, banks could offer those who took out an interest rate of about 4.5 to 5 percent on a small business loan – about half the rate on a loan. not guaranteed to SMEs normal.

Raising the guarantee rate from 50 percent to 80 percent may not result in a much larger drop in the interest rate on these loans. At this point, the banks are not providing this detail.

When the first government loan program was introduced in March of last year, it is fair to say that it was not adopted by the big banks. When only the Commonwealth Bank encouraged it, the ANZ was publicly against membership and Westpac and National Australia Bank were not strong supporters but kept their lack of enthusiasm silent.

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A year later, they all learned that it wasn’t nice not to kiss Team Australia.

On Wednesday evening, Frydenberg informed the four big bosses of the bank about the new guarantee system. On Thursday morning, their advertising services released statements of support from the government.

That doesn’t mean they’re about to sign a truckload of new loans under Mark III. This is because the most likely scenario is that borrowers already using the device will migrate to the updated package.

And it’s not just the banks that haven’t participated in the government’s generous interest rate reduction program. When it was introduced last year, small businesses that had been hit by the pandemic wondered if they could stay afloat and not in the spirit of taking on more debt.

By the time the package was revised later in the year, SMEs affected by COVID had already been bailed out by the government’s JobSeeker package and the economy was already showing signs of improvement.

So most did not need to borrow more money.

In addition, some of the businesses that would be eligible for the latest loan program will also receive assistance from the $ 1.2 billion tourism program which the government also announced on Thursday.

The details of the tourist package are a bit vague, but involve the government purchasing cheaper plane tickets to vacation destinations, in an effort to encourage Australian travelers to boost local economies which typically rely on foreign tourists.

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