A number of measures have been announced to support Australians and the economy in response to the Coronavirus.
We have put together some information to summarise the key finance-related measures and to assist you in understanding the help that could be available to you from a banking and finance perspective.
Small business loans – relief package
Australian banks will provide support to eligible small businesses in the following ways:
1. Deferring loan payments for up to six months.
- Who can apply? Originally for SME businesses with lending up to $3m, however, this has now been extended to businesses with up to $10m in lending.
- Are all lenders providing this? No, not all. In particular, a lot of the smaller fintechs and non-bank lenders have not been able to provide the full 6 months but are providing some relief.
- Process – Typically, this is available immediately but the process varies between banks. Some have opted for a simple online process, others require a submission. However, due to the volume of requests being received, there is a delay in implementing.
- What happens to interest during the term? Interest is still charged and capitalised (added) to the balance. So at the end of 6 months, your loan balance will increase.
2. Offering unsecured loans.
For example, some banks are offering up to $250,000 (lending criteria applies) with no establishment or account fees, and no repayments required for six months for business with less than $50m turnover. After 6 months, interest would be charged at approx. 4.5% with principal and interest payments required. Our current advice:
- At this point in time, it is proving difficult to obtain clarity from any lenders about the qualification criteria, however, general feedback is that lending assessments will apply. It is likely banks will use financial information as at 31st of December 2019 to make an assessment as to whether you can repay the loan. We are constantly seeking information from the banks and will update you with more criteria details asap.
- It is important to note these loans when available are ‘loans’ and not gifts. The government guarantee component represents a guarantee from the government to the banks for 50% of the loan. What we do not currently know is what the recourse will be to the borrower for the government guarantee component. One thing we do believe will be certain, the bank will have recourse to the borrower and business owners.
- Banks will most likely require guarantees from directors and shareholders. Whilst the press releases indicate the loans will be ‘unsecured’ what this likely means is that there is no requirement for real estate security for charges over the business. We are certain the banks will require personal guarantees from the business owners/directors as a means of ensuring repayment in due course.
- Considering the above, it would be wise to chat with your broker to discuss how an additional loan such as this can be best structured in light of your current debts.
- Also, don’t be overly optimistic about the bank approving such a loan in a short period of time. All the banks were short-staffed before this crisis, now they are being swamped. As best you can, review your cash outflows and make immediate changes so you can make your cash go further.
3. Reducing interest rates on existing loans.
Typically, this is happening automatically however contact your bank if you don’t see a change.
4. Deferring payments on overdrafts, waiving merchant terminal fees, waiving redraw fees on term deposits.
Reach out to your bank directly or via your broker to get this in place immediately.
5. Deferring payments or tailoring payment plans on vehicle and equipment finance loans.
Reach out to your bank directly or via your broker to get this in place immediately.