Access to capital crucial to small-business survival: ASBFEO

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The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has called on the Government to set up a revenue-contingent loan scheme for small businesses. The Ombudsman said that such a move is critical to the cashflow requirements of many SMEs in staying solvents in the next 12 months with COVID fiscal stimulus measures ending and banks still making the loans process so complicated and time-consuming for 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,” Carnell said.

“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.”

The Ombudsman is advocating for a revenue-contingent loan scheme for small businesses that mirrors the HECS scheme, meaning borrowers will only have to start making repayments once their turnover reaches a specified level. The proposal is that the Federal Government fund the scheme, and that maximum loan values are calculated based on each SME’s annual revenue, with businesses applying for funding needing to pass  a viability test to qualify.

“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,” Carnell added.

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

“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.”