Will your business be affected?
The economic impact of the coronavirus could be as bad, or worse, than the Global Financial Crisis that occurred in 2008. What are the possible impacts?
- Supply chain disruption.
- Forced closure due to a lockdown, yet still being required to pay salaries and rent.
- A prolonged period of reduced sales.
- Unavailability of staff/staff working from home.
- International recession or depression.
- Travel restrictions.
- Cancelled events.
- Delays in receiving payments from customers.
- Unforeseen consequences and flow on effects that you cannot predict or prepare for.
Some industries such as tourism, education, manufacturing, hospitality, retail and healthcare are likely to be affected more than others. However, most economists are predicting all industries to be affected.
How can your bank help?
The Australian Banking Association has announced that loan repayments for small businesses affected by the coronavirus can be deferred for up to six months.
To make sure you’re put in place for a fast track approval process, contact your bank immediately if your business is facing financial difficulty.
Some banks are participating in the SME Guarantee Scheme, which is available for businesses with a turnover of $50 million or less.
Westpac
- Business loan repayments will be deferred for six months (case by case basis).
- Interest capitalised on the payment deferral period.
- Waiver of establishment fees or monthly accounting fess, however, other fees and charges apply.
ANZ
- Defer business loan repayments for up to six months. Interest is capitalised.
- Temporary increases in overdraft facitilies for 12 months.
- 0.25% p.a. decrease in variable rate on small business loans.
- Participating in the SME Guarantee Scheme. These loans will be available from 6 April 2020.
Commonwealth Bank
- Reduction of interest rates on business loans by 25 basis points.
- Business loans repayments and overdraft payments deferred by up to 90 days.
- Waiver of merchant fees.
- Waiver of early redraw fees on business term deposit accounts.
- Waiver of establishment fees and excess interest on Temporary Excess products.
- Repayments on vehicle and equipment finance deferred.
NAB
- Business loan repayments deferred for up to six months (case by case basis).
- Extend business loan term period by up to 3 months (case by case basis).
- Assitance in existing business loan restructuring, including equipment finance.
- Offering Business Support Loan (which is the SME Guarantee Scheme) of up to $250,000 at 4.5% p.a.
Bankwest
- Interest rate reduction of 1% for new and variable business loans, effective 3 April 2020.
- Merchant fees waived for 3 months.
- Business loan repayments deferred for up to six months.
- Waiver of reduction in interest for early pre-payment of business term deposits.
- Waiver of establishment fees on Temporary Overdraft products.
- Repayments deferred for vehicle and equipment finance loans.
- Tailored restructuring options.
- Participating in the Government’s SME Guarantee Scheme.
Suncorp
- Deferral of principal and interest payments for up to six months. (Interest will be capitalised and loan term extended, unless stated otherwise).
- Interest only repayment option for 12 months (loan term will be extended).
- Deferral of instalments on equipment and finance facilities for 6 months.
- Waiver of merchant rental and pay only the minimum monthly fee for 6 months.
How can you prepare financially?
What can you do to prepare your business for the financial impacts?
- Sell assets.
- Look for alternative income sources.
- Adapt your business to operate remotely/online.
- Negotiate with creditors/suppliers.
- Call in unpaid debts/debtors.
- Improve your inventory management.
- Cut unnecessary business expenses.
- Put new projects/business ideas on hold.
- Plan ahead with a cash flow projection (contact your accountant).
- Talk to your accountant about the recent government stimulus package.
- Set up an emergency fund with cash on standby.
Talk to your service providers and business partners to see arrangements can be made for a fee waiver, reduction in fees or fee deferral for a few months.
If it’s clear that your business will not survive the crisis then you may need to consider shutting your business early rather than prolonging the inevitable. It’s best to contact your accountant if this is the case.
What is the SME guarantee scheme?
It is a federal scheme, where the government will guarantee 50% of all new SME loans of small and medium sized enterprises, which also include sole traders and non-for-profit organizations.
The government will support unsecured loans of up to $250,000 for SMEs.
The aim of the scheme is to provide these businesses with working capital to brace the impact of the coronavirus.
This guarantee is only available if the business applies for an SME loan through its participating lenders.
Businesses who are interested in the SME guarantee scheme must apply for a loan before 30 September 2020.
SME Recovery Loan Scheme
This is an extension and expansion of the SME Loan Guarantee Scheme.
The SME Recovery Loan Scheme is designed to assist SMEs that are currently receiving JobKeeper.
The exisitng SME Guarantee Scheme is open to eligible borrowers until 30 June 2021.
To be eligible for SME Recovery Loan Scheme:
- The business is a recipient of JobKepper payment between 4 January 2021 and 28 March 2021.
- It is a small and medium-sized business with up to a $250 million turnover.
- Self-employed and non-profit businesses are eligible.
Loans will be available from 1 April 2021 and must be approved before 31 December 2021.
What changed?
- The government will guarantee 80% of the loan (which is up from the 50/50 split between the banks and government).
- The size of eligible loans is $5 million, up from $1 million.
- The loan term has increased to 10 years from 5 years. There is an option for a repayment holiday of up to 24 months.
- The maximum eligible turnover has increased from $50 million to $250 million.
For more details, please read the Treasury’s website on the SME Recovery Loan Scheme.
SME Guarantee Scheme extended
The initial phase of the scheme is available for new loans until 30 September 2020.
The government has announced that it will extend the Coronavirus SME Guarantee Scheme to 30 June 2021.
The second phase of the scheme will come into effect from 1 October 2020 to 30 June 2021 with the following changes:
- The loan can be used for a broader range of business purposes other than for working capital.
- The maximum loan size will be $1 million per borrower.
- The maximum loan term will be 5 years.
- A six month repayment holiday will be at lender’s discretion.
- The loan can either be secured or unsecured (excluding commercial or residential property)
In a statement, Treasurer Josh Frydenberg said, “The expanded scheme will shift from providing access to working capital to help businesses stay afloat during the crisis to now also enabling them to access more affordable and longer-term credit so that they can invest for their future.”
Which banks are participating in the scheme?
There are 44 lenders participating in the scheme:/p>
- ANZ
- Australian Mutual Bank Limited
- Banjo
- Bank Australia
- Bank of Queensland
- Bank of us
- Bendigo and Adelaide Bank Ltd
- Commonwealth Bank of Australia
- Community First Credit Union
- Credabl Pty Ltd
- Fifo Capital Australia Pty Ltd
- First Choice Credit Union
- Get Capital
- Goulburn Murray Credit Union
- Heritage Bank Limited
- Hume Bank Limited
- Illawarra Credit Union
- IMB Bank
- Judo Bank Pty Ltd
- Laboratories Credit Union
- Liberty Financial
- Lumi
- Macquarie Bank
- Moula Money
- MyState Bank Limited
- National Australia Bank Limited
- On Deck Capital
- Police Credit Union
- Prospa
- Queensland Country Bank Limited
- Regional Australia Bank Ltd
- Social Enterprise Finance Australia Ltd
- South West Credit Union
- Southern Cross Credit Union
- Speedy Finance
- Spotcap
- Summerland Credit Union
- Suncorp
- The Capricornian Ltd
- The Mutual Bank
- Tyro Payments Limited
- Unity Bank
- WAW Credit Union
- Westpac
What is the eligibility for the scheme?
- Turnover of less than $50 million in the previous year, or expected turnover will be less than $50 million in the current fiscal year.
- The loan is for business purposes only and is unsecured.
- Maximum loan size is $250,000 per borrower.
- The loan term is for 3 years with a repayment holiday during the first six months.
Setting up an emergency fund
Most businesses are operating profitably during good times and so an event like this is a cash flow issue rather than a long term profitability issue.
For this reason, there are several options to use debt that can help you to take action quickly to avert disaster.
- Refinance your properties to release equity in case of emergencies (usually the cheapest option).
- Seek a business loan (more expensive).
- Consolidate your debts to lower your repayments.
- Switch your loans to have interest only repayments.
- If things are really bad, then a credit mediation firm can be engaged to assist you to negotiate hardship. provisions with your existing lenders.
Email your Home Loan Experts mortgage broker, call us at 1300 889 743 or fill in our free assessment form if you’d like assistance with one of these options.
Why do you need to act now?
There’s a short window of opportunity to take action because there is a cascade of effects that the coronavirus will have on our economy and lenders.
- Bank valuers will likely be more conservative a few weeks from now. This reduces how much you can borrow.
- Bank valuers may refuse to visit properties, making it impossible for lenders that require them to lend.
- Some lenders look at your tax returns, whereas some require interim financial statements or BAS which may cause your application to be declined.
- Most lenders have their staff working from home, inevitably there will be delays.
- Lenders will prioritise loan applications to buy a property, which means your refinance or business loan may be delayed.
- Australia is likely to go into a total lockdown which may cause lenders to stop lending.
- Some lenders require face to face meetings to identify borrowers, which may not be possible.
We believe you have approximately one week, maybe two weeks, to take action before refinancing becomes more difficult.
Turning lemons into lemonade
We’re not recommending that you consider a business strategy that preys on other people’s misfortune. For example, selling overpriced hand sanitiser in times of need is unethical. However you can look for a way to help your customers that helps your business as well.
Your customers still need the service that you are providing, the question then becomes how do turn a problem into an opportunity?
This won’t be easy for some industries or businesses, for others there are opportunities to evolve to thrive in the new economic environment.
How to get help with your finances?
Email your Home Loan Experts mortgage broker, call us at 1300 889 743 or fill in our free assessment form. Our team is working from home, and are ready to help you during these difficult times.