The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has welcomed reports coming out of Canberra that Treasury is considering a revenue-contingent business loan scheme. The initiative aligns with ASBFEO’s advocation since last April April for a scheme to help small businesses maintain enough cashflown to survive the next 12 months, as JobKeeper is phased out.
“Access to credit will be critical to keeping small businesses afloat as various government support measures are withdrawn, rent relief ends and those overheads start to pile up,” Carnell said.
“We know that many small businesses haven’t been able to fully recover from the COVID crisis so this targeted support measure could mean the difference between life and death for them.”
Under the Ombudsman’s proposal, the revenue-contingent loan program for small businesses would operate similarly to HECS, requiring borrowers to repay when their turnover reaches a designated level.
The loan would be Federal Government-funded and capped at a percentage of the small business’s annual revenue. Applicants would need to satisfy a viability test conducted by an accredited adviser to be eligible.
“Sudden lockdowns and border closures have hit small businesses hard in recent weeks – it’s no wonder they are reluctant to take on additional bank debt when conditions can deteriorate without warning,” Carnell said.
“Even in the best of times, small businesses have struggled to secure finance,” Carnell added. “Taking into account the enormous challenges that they are now facing, the impact of insufficient working capital could be devastating for the small business owner and staff, not to mention the broader economy.”
The Ombudsman pointed out that the latest ASIC data shows external administrator appointments were up 23 per cent in December 2020 and that economists are predicting the number of businesses entering voluntary administration to rise steeply 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,” Carnell concluded.
