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Ombudsman urges HECS-style small business loan scheme

January 15, 2021 Headline News No Comments

When the JobKeeper wage subsidy ends in March and the government’s $128 million travel agent support package trickles out, a HECS-style loan scheme for small businesses, to provide cash-flow over the next 12 months, may make the difference between survival and financial ruin.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, is urging the Federal Government get the scheme running.

As government support measures are withdrawn, banks continue to subject small business borrowers to onerous credit assessment processes. With rent relief ending and recent lockdowns and border closures having a devastating effect on travel and commerce, Carnell believes that access to finance could spell the difference between life and death for many small businesses.

“Unfortunately, it’s a perfect storm scenario – especially for those small businesses that haven’t been able to fully recover from the Covid crisis,” she said yesterday.

Many travel businesses would fall into that category.

“Access to credit will be critical to keeping those otherwise viable small businesses afloat, particularly over the coming months as support measures are phased out and the bills start flowing in again,” Carnell said.

She has called on the Federal Government to introduce a revenue-contingent loan program for small businesses, similar to  the student loan scheme HECS, requiring borrowers to repay only when their turnover reaches a designated level.

The loan would be Government-funded and capped at a percentage of the small business’ annual revenue. Applicants would need to satisfy a viability test conducted by an accredited adviser to be eligible.

“Sudden lockdowns and border closures have heavily impacted small businesses in recent weeks – it’s no wonder they are scared to take on additional bank debt given conditions can deteriorate so rapidly,” Carnell said.

“Even in the best of times, small businesses have struggled to secure finance. Taking into account the enormous challenges they are now facing, the fallout of insufficient working capital could be devastating, not only for small business owners and their staff, but for the broader economy.

“The latest ASIC data shows external administrator appointments were up by 23% in December 2020 and economists are predicting a rise this year in the number of businesses entering voluntary administration.

“A revenue contingent loan scheme would give small businesses the confidence they need to seek funding, so they can survive and employ again. It’s essential to Australia’s economic recovery,” Carnell said.

As the inaugural Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Carnell works as an independent advocate for small business owners.  Her office has the legislative powers to effectively influence Australia’s lawmakers, ensuring legislation and regulations are put in place to help small businesses grow.

MEANWHILE, Treasurer Josh Frydenberg was upbeat yesterday about Australia’s economic prospects. Despite the onslaught of the pandemic and the impact of measures taken by China against Australian exports, Frydenberg said he remained confident the economy would keep strengthening and unemployment would fall, even when JobKeeper ended.

Frydenberg pointed out that households and businesses had amassed more than A$200 billion in savings during the pandemic.

“I’m confident that people will spend that money across the economy and help generate economic activity,” Frydenberg said yesterday. Experience in previous economic downturns suggested that the money eventually “does get spent”, he said

Shadow treasurer Jim Chalmers was not so sure.

“A reason that we’ve got these higher savings is because there’s been so much uncertainty in the economy,” Chalmers told ABC radio. “That uncertainty hasn’t disappeared entirely.”

The travel industry is in a special position, because the government has effectively placed travel in a straitjacket. Emergency Covid-19 regulations forbid outbound travel without a permit. At the same time, abrupt closures of state borders, and alarming stories about people trapped by sudden changes in border regulations, have put a severe dampener on interstate domestic travel. 

Written by Peter Needham

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