Revenue Linked SME Loan Scheme Critically Important - ASBFEO
(15 January 2021 – Australia) The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) asserts that the Australian federal government should establish a revenue contingent loan scheme for small to medium sized enterprises (SMEs) to provide them with critically important cash flow they require to survive in 2021.
Similar to student ‘HELP’ loans, a revenue-contingent loan program would require borrowers to repay when their turnover reaches a designated level, according to the Ombudsman Kate Carnell. Under such a scheme, the loan would be government funded and capped at a percentage of the small business’s annual revenue. Small business owners would need to satisfy a viability test conducted by an accredited adviser to be eligible.
With government support measures being withdrawn, banks continuing to subject small-business borrowers to onerous credit assessment processes, rent relief ending and the impact of recent lockdowns and border closures, access to finance could mean the difference between life and death for many small businesses as confirmed by the latest Scotpac SME Growth Index where one third of Aussie SMEs were considering closing up shop if conditions did not improve substantially.
With lockdowns and border closures detrimentally impacting small businesses in the new year, the ASBFEO said it’s no wonder they are scared to take on additional bank debt given conditions can deteriorate so rapidly.
“Unfortunately, it’s a perfect storm scenario, especially for those small businesses that haven’t been able to fully recover from the COVID crisis. 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” Ms Carnell stated.
“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 percent in December 2020 and economists are predicting the number of businesses entering voluntary administration to rise this year” Carnell added.
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