Revenue Contingent SME Loan Scheme a Lifeline - ASBFEO
(05 February 2021 – Australia) The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) welcomes Treasury considering a revenue-contingent small business loan scheme.
Ombudsman Kate Carnell asserts it would provide a lifeline to small businesses recovering from the COVID crisis having called on the Federal Government to introduce a the scheme since Q2 2020 because the program would provide otherwise viable small businesses with the cash flow they need to survive the next 12 months, particularly as JobKeeper is phased out.
Under the Ombudsman’s proposal, the revenue-contingent loan program for small businesses would operate similarly to student HELP debts, 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’ annual revenue. Applicants would need to satisfy a viability test conducted by an accredited adviser to be eligible.
“Access to credit will be critical to keeping small businesses afloat as various government support measures are withdrawn, rent relief ends and those overheads start to pile up. 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” Ms Carnell stated.
“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. Even in the best of times, small businesses have struggled to secure finance. 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 latest ASIC data shows external administrator appointments were up 23% in December 2020 and 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” Ms Carnell added.
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