ASBFEO calls for income-tested loans
The Small Business Ombudsman requests a government subsidized income-tested loan for SMEs following poor adoption of the SME guarantee scheme.
Australian Small Business and Family Business Ombudsman (ASBFEO) Kate Carnell is calling for a new government-subsidized loan to be made available to SMEs.
Highlight a recent Sensis report, who found that more than a quarter of small businesses see their requests for financing ‘pushed back’ by credit providers and that 36% have difficulty obtaining credit, Ms Carnell said that ‘access to finance is essential to the survival of small businesses, especially with a number of support measures expected to end or start to disappear in the coming weeks ”.
In addition, the volume of funds requested by SMEs is said to be declining, with fintech Lend Capital (Lend) having recently told the Advisor that applications and funded loans have dropped dramatically over the past few months. Much of this is due to uncertainty in the current environment caused by ever-changing lender policies and a change in risk appetite, according to the SME Finance Platform.
Australian government Guarantee system for SMEs against the coronavirus, which was started to help support up to $ 40 billion in loans to SMEs, has also been ineffective in helping provide finance to those in need – with only 15,600 business loans worth $ 1.5 billion having been issued, according to Treasury figures.
While the diet will go via a reboot for the second tranche (opening October 1, 2020), several industry commentators have warned the changes may not go far enough to help those who need them most.
Indeed, ASBFEO Kate Carnell suggested that small businesses would be more likely to take out an income-tested loan than seek funding under the government’s current guarantee system.
As part of the Ombudman’s COVID-19 stimulus plan, Carnell therefore recommends the launch of a new government-funded product, capped at a percentage of the small business’s annual revenue.
Refunds would be required once revenue reached a designated level and would be calculated as a percentage of revenue.
Ms Carnell said: “Right now, small businesses are afraid of taking on additional debt because they don’t know what to expect and how any additional lockdowns could affect their ability to repay their loans.
“An income-based loan would work the same as HECS, with small businesses only having to start repaying once turnover has recovered to an agreed level. If income were to fall below this level, payments would stop, ”she said.
Regarding the SME guarantee scheme against the coronavirus, Ms Carnell said: “Even though the government assumes 50% of the risk under its loan guarantee program, loans continue to be subject to evaluation processes. bank credit, which means that small businesses with declining income struggle to obtain financing. “
She pointed out, however, that the proposed income-based loan would require businesses to pass a viability test to be performed by an accredited financial advisor.
“An income-tested loan would give small businesses the confidence they need to seek financing to help them get through this crisis, so they can grow and employ,” the Small Business Ombudsman continued.
“Any small business that is considering taking out a loan should always speak to their trusted advisor first – whether they are a certified broker, accountant, or bookkeeper.”
In addition to recommending a new loan based on income, ASBFEO is also urging the federal government to abolish the Employee Benefits Tax (FBT) for at least two years in order to stimulate much needed cash flow for the economy and support small businesses in difficulty.
In a letter to Treasurer Josh Frydenberg, Ms Carnell argued that this change to the tax system would give a boost to small businesses in sectors hardest hit by the COVID crisis.
“Small businesses are unfairly affected by the benefits tax,” said Ms. Carnell.
“As it is, small businesses are required to pay FBT on items that large businesses often provide in-house to retain staff, such as meals, gyms, and daycares.
“Large companies can actually claim certain services as business expenses, without paying the FBT.
“But small businesses that offer the same benefits to their offsite teams have to pay FBT. At the same time, high FBT rates dissuade companies from spending with small businesses, especially those in the hospitality and tourism sectors, which are suffering the most right now, ”she said.
“A weekend, a lunch in a restaurant or a round of golf with a team, all attract the FBT.”
She cited modeling undertaken by EY on behalf of Tourism Accommodation Australia and the Australian Hotels Association, which indicated that the suspension of the FBT on accommodation, meals and beverages alone would produce economic returns of up to 3.8 times the direct cost to government.
Ms Carnell concluded: “The FBT discourages businesses from spending with small businesses, which reduces the amount of money going into the economy.
“The social benefits tax was less than 1 percent of government revenue in 2019-2020 and that figure is likely to be even lower in the current fiscal year due to the economic downturn.
“The abolition of FBT would cost the government no more than $ 4 billion a year, but it would be an effective support measure for small businesses and also boost cash flow in the economy when we have it. Not needed anymore.
[Related: SME Guarantee Scheme shortcomings lamented]
Annie Kane is editor-in-chief of The Adviser and Mortgage Business.
In addition to writing about the Australian brokerage industry, mortgage market, financial regulation, fintechs and the broader credit landscape – Annie is also the host of Elite Broker and In Focus podcasts and The Adviser Live webcasts. .