Small businesses could soon access revenue-contingent loans, following the federal government’s consideration of a new loan scheme where repayments are based on turnover.
In practice, the loan scheme would work like HECS loans, and allow businesses to access credit without having to pay it back until turnover had reached a designated level.
Australian small business and family enterprise ombudsman Kate Carnell, who has been calling on the government to introduce such a scheme since April last year, said it would help businesses “survive and employ again”.
“A revenue contingent loan scheme would give small businesses the confidence they need to seek funding, so they can survive and employ again,” Carnell said on Thursday.
When JobKeeper and the rent relief program end in March, Carnell says access to credit will be critical to keeping small businesses afloat.
“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 says.
The loans would be funded by the federal government and capped at a percentage of the small business’ annual revenue.
And, to ensure so-called zombie businesses do not continue to be propped up by government support, applicants would need to satisfy a viability test by an accredited adviser to be eligible for the loans.
Carnell says the number of businesses entering voluntary administration is expected to rise steeply this year as pandemic emergency relief winds down.
The latest ASIC data shows external administrator appointments were already up 23% in December 2020.
Gavan Ord, manager of business and investment policy at CPA Australia, says progressive loans would mainly help businesses that are struggling to access credit through traditional lenders.
“Traditional lenders may regard businesses who relied or still rely heavily on JobKeeper as ‘captain risky’ and be unwilling to extend them credit,” Ord tells SmartCompany.
Ord says, at first glance, revenue-contingent loans seem promising, however, it is difficult to say how helpful they would be until more details are known about the viability test and turnover thresholds.
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“The proposal is still highly conceptual and we’re yet to see any details, but as a concept, it’s interesting and worth exploring,” he says.
“Contingent loans could provide a solution for businesses who are struggling to access finance.”