Coronavirus Stimulus Package – Collaboration with banks to boost working capital

Businesses getting bank loans to tide them over and boost their working capital will now have 50% guaranteed by the government and a repayment holiday of 6 months.

Part of the second stimulus package announced by government, and passed on Monday night, included a Coronavirus SME guarantee scheme, through which the government will guarantee 50% of new, short-term bank loans to SMEs. The scheme is designed to ensure businesses can access working capital in order to navigate what are sure to be challenging cash flow times ahead.

The following rules apply:

• SMEs with a turnover of up to $50 million will be eligible.
• Maximum loan of $250,000 per borrower.
• Loan terms will be up to three years with an initial six-month repayment holiday.
• Loans will be unsecured, meaning that borrowers do not need to provide assets as security for the loan.

Businesses need to be mindful that lender credit assessment processes will still apply. Lenders will consider the uncertainty of current economic conditions but may also take into account the borrowers history. On a positive note, the government are encouraging lenders to provide a facility that can be drawn down as required, aiming to provide the flexibility of only drawing funds as they are needed, and only paying interest on the amounts drawn.

The SME guarantee scheme is expected to commence early April.  Applications will need to be made directly to participating lenders.

Also in collaboration with banks:

• The government is providing an exemption from responsible lending obligations. This should increase the speed and efficiency with which existing business customers can access credit from their banks.
• The RBA has announced a funding facility for the banking system, reducing funding costs to banks and thereby enabling them to reduce interest rates to borrowers. Additional low cost funding is also available to banks who expand their business lending, encouraging lenders to support businesses borrowing. Similar support is available for smaller lenders through the Australian Office of Financial Management (AOFM), who otherwise would not benefit from the RBAs facility.
• Finally, the Australian Prudential Regulations Authority (APRA) has announced temporary changes to the capital ratios expected from banks.  This will further support banks lending to customers.

Please contact YBM for further information.

By Nicola Brazier – YBM

Yates Baker McLean. Accountants and Business Advisors situated in the Central West of NSW. Offering comprehensive advice for all your financial needs including tax, auditing, business advisory, self managed super funds, specialised industry experience and financial planning.