Small businesses impacted by the coronavirus crisis will be able to defer their loan repayments for six months under a plan put forward by the banking industry.
Australian Banking Association chief executive Anna Bligh said, “This is a multi-billion-dollar lifeline for small businesses when they need it most, to help keep the doors open and keep people in jobs.”
To pause loan repayments, “all that a business has to do is register their need with their bank,” Ms Bligh said.
Yesterday the RBA decided to cut the interest rate to a record-low of 0.25 per cent. This comes with other historic measures to try to reduce the impact on the economy.
Ms Bligh said that small businesses “can rest assured that their banks have got their back.”
Australia’s small businesses collectively have $100 billion in loans so this bailout could put up to $8 billion back in their pockets.
There are no set criteria for determining which businesses can access this relief.
“We won’t be looking to draw arbitrary lines in the sand,” she said. “Banks know who their small businesses are.”
The bailout package was designed in consultation with the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.
A key plank of the RBA’s support package announced Thursday was the creation of a $90 billion lending facility to banks for small and medium businesses, adding to a $15 billion loan scheme for small and medium lenders also announced by federal government.
How small businesses are reacting to loan repayment deferrals
Roger Mendelson, Prushka CEO, regards the announcement of the repayment deferral package as a “brilliant plan.”
“The Australian Banking Association’s announcement of a six-month deferral on loan repayments for small businesses is a terrific plan and is very clever.
“It takes effect immediate, will significantly reduce the number of potential business failures and enable more businesses to ride out the Corona recession.
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“It makes no sense for banks to have to deal with thousands of defaults on business loans. They couldn’t handle it, the insolvency industry couldn’t handle the deluge of work and the percentage of loans in default would rise and impact bank balance sheets. It’s a brilliant plan.”
Max Bluvband, founder and CEO of AppsVillage, has said “SMEs are the backbone of the Australian economy and supporting them must be a priority for the Government during this difficult time. The current market conditions are taking their toll primarily on SMEs and cashflow is the difference between survival and foreclosure.”
How SME lenders are reacting
Arun Maharaj, CEO of HashChing, has said that this financial support will be “an immediate sugar it.”
“Injecting this funding, specifically to smaller lenders, will help them to stay nimble and further support their ability to be quick and efficient at getting out the necessary loans to SMEs. SMEs desperately need quicker access to funds, which is what the smaller lenders are able to provide.
However, Arun also believes that there is more to do.
“I think the Government needs to go further and consider tax relief such as extensions of time to lodge and pay tax obligations. Additionally, the government should look to make it easier for SMEs on a quarterly GST cycle to elect and change their GST reporting to monthly, if that assists with obtaining quicker GST refunds.”
Yanir Yakutiel, CEO of Lumi, recognises the important role that SME lenders will play in helping to implement this policy.
“The government and the big four banks have several advantages, such as their balance sheets and customer base; however, the same structural and technological challenges the banks faced serving SMEs before the crisis remain true. That’s why they need to utilise SME lenders such as Lumi as a conduit to customers as the best and most efficient way to get capital from the government to small businesses.
“SME lenders like Lumi have the origination, underwriting and servicing capabilities to handle a large volume of small ticket specialised business loans that banks simply do not have. The implementation of the policy will undoubtedly have to rely on the fintech lenders.”
Seed Space founder and managing partner Dirk Stellerhas said the government’s response to SME lending is “timely” and “critical.”
“The Australian government’s response to support SME lending through the AOFM is timely and critical as banks face their own funding concerns. The SME sector is a significant employer in the Australian economy and these steps will help support businesses, and importantly their employees and families in this very challenging period.”
“Importantly these actions mitigate some of the potential multiplier effects of credit re-pricing that can occur in stressed market environments, where banks have the potential to take advantage of their customers.“
“These actions also put the larger banks on notice, that there is competition despite the current uncertain conditions, and that credit pricing is being scrutinised and SMEs know they have other financing options “
“It will be interesting to see how this will be process will be managed and which instruments will be eligible in the AOFMs investment into wholesale funding. The continuity of competitive credit pricing is vital for the support of economic growth driven from the SME sector.”
Find more information on support for your small business during the coronavirus pandemic here.