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04 February 2021

Loan scheme a lifeline to small businesses hit by COVID crisis: Ombudsman

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed media reports that Treasury is considering a revenue-contingent business loan scheme, saying it would provide a lifeline to small businesses recovering from the COVID crisis.

Ms Carnell, who has been calling on the Federal Government to introduce a revenue-contingent loan scheme since April last year, says 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.

“Access to credit will be critical to keeping small businesses afloat as various government support measures are withdrawn, rent relief ends and those overheads start to pile up,” Ms Carnell says.

“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.”

Under the Ombudsman’s proposal, the revenue-contingent loan program for small businesses would operate similarly to HECS, 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.

“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,” Ms Carnell says.

“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.”