At a time when Australian businesses desperately need cash flow, the government has moved to make it as simple as possible to access funding. Business owners need to know what is available and how they can take advantage of unprecedented access to capital.
The Australian Government is tipping billions into the business loan market, slashing rates and red tape to get money to businesses as fast as possible.
Restructuring business loans - with a number of lenders offering repayment pauses of six months on new and existing loans - businesses can use the opportunity to trade through this crisis or pivot to take advantage of new opportunities. Government measures to pump cash into the lending market are focused on supporting businesses to keep as many jobs as possible. The Australian Banking Association has announced businesses may be able to use the JobKeeper scheme as the basis for credit applications to fund wages while they wait for government payments to flow through.
Brokers stand ready to help with loan arrangements that best suit company needs going forward, whether it's a new website to shift to online trading, new machinery to pivot services or just help covering expenses during this shutdown.
Distressed businesses worried they may not meet credit requirements, need to be aware of regulatory changes to help them access capital to ride out the turbulence:
The Government has provided an exemption to the usual lending requirements for lenders looking to extend credit to existing small business customers. So, even if your cash flow forecast isn't looking as healthy as it was, you may be able to approach your current lender to pause one loan and access another.
To provide breathing space for businesses, the threshold at which creditors can issue a statutory demand has been lifted from $2000 to $20,000, and the time a business has to respond has been lifted from 21 days to six months. These changes will apply for six months.
Similarly, any personal liability on directors over insolvent trading will be waived for six months to allow businesses to trade through a turn around.
Along with loosening lending and trading restrictions, the government and the Reserve Bank of Australia have poured billions into the banking and non-bank lending markets to put downward pressure on interest rates by providing access to low-interest finance to fund loans. The key initiatives:
Coronavirus SME Guarantee Scheme: The government has committed to providing a 50% guarantee on up to $40 billion worth of unsecured working capital loans to businesses with turnover of up to $50 million. The maximum loan amount is $250,000 per borrower, with an initial six-month repayment holiday.
RBA $90 billion Term Funding Facility: The Reserve Bank has provided banks access to a $90 billion pool of funding available at 0.25%, meaning banks can lend to customers at a low rate. Although this funding will be available for all types of loans, incentives will be built into the system, allowing greater access to low-cost funding for banks that expand their business lending.
Non-bank and smaller lenders: The Australian Office of Financial Management has been allocated $15 billion to invest in the structured finance markets used by smaller lenders. The money will be used to support unsecured and secured small business loans along with consumer spending loans for credit cards, cars and personal loans.
Australian Business Securitisation Fund: The fund, established in April last year to support small banks and non-bank lenders, announced on April 3 it had invested $250 million to bolster lending to SMEs. The ABSF buys and holds securitised loans to support lending markets.
Types of finance available include:
Line of credit: The government is encouraging lenders to use line of credit arrangements for unsecured loans extended under the Coronavirus SME Guarantee Scheme. Loans brokered under this scheme, which runs until 30 September, will come with an initial six-month repayment holiday.
Unsecured loan: You don't have to stump up collateral for an unsecured loan. Small businesses would usually need to pass a stringent credit assessment. However, with the government going guarantor for 50% of the loan amount under the Coronavirus Scheme, it mitigates that need. Government guidance states it is hoped ''lenders will ... sensibly take into account the uncertainty of the current economic conditions''. Lender due diligence obligations have also been lifted for new loans to existing customers until the end of September.
Invoice financing: This type of lending has been in the headlines lately, with some large companies accused of using invoice financing to hold smaller suppliers to ransom. But in the right circumstances it can help businesses release cash flow in a tight spot. Under the arrangement, a business ''sells'' their invoice to an invoice financing company, which pays them up to 95% of the invoice immediately. When the bill is paid, the business receives the balance, minus fees and charges, which can be around 2-5% of the total amount.
Business Credit Card: Compared to other types of loans, interest can be high. Businesses that are confident they can pay balances off during the interest-free period may find it useful to accumulate card perks, such as frequent flyers.
Equipment finance: This could suit businesses looking to pivot their operations and purchase machinery or equipment (several Australian distilleries have flipped their operations to manufacturing hand sanitiser). Vehicles can also be purchased with equipment finance, if you need to look at home delivery, for example. It's worth noting that as part of the government's coronavirus stimulus package, the Instant Asset Write-Off has been bumped from $30,000 to $150,000 and expanded to businesses with a turnover up to $500 million. Under this loan arrangement, the equipment immediately becomes the business's property and is used as security for the finance.
Thanks to the government's record spending, low-interest loans have never been more accessible for businesses of all sizes. Whether businesses need extra finance to trade through the crisis or are poised to consolidate their positions, the stimulus package is encouraging banks and non-bank lenders to support Australian employers.
Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643
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