Coronavirus Financing and Grants

A Complete Guide to Government Support And Alternative Funding Options – Updated April 16, 2020

With the COVID-19 coronavirus outbreak hitting over 2.1 million  people globally to date (true for April 16, 2020 – check up to date statistics here), of which 6,468 are in Australia (the new infection rate now slowing and just 26 confirmed cases yesterday)), there is no doubt the world is facing a major crisis and Australia has responded accordingly with social distancing measures implemented throughout all of Australia’s states. The coronavirus is first and foremost, and being treated as, a public health issue but it is having a very major impact on the economy, financial markets and small businesses of Australia.

Small businesses in Australia are being impacted from Coronavirus in a variety of ways:

  • Supply chains break – especially those importing from Asia
  • Exports are being held for clearance into China
  • Fewer customers as a result of social distancing
  • No foreign tourists as of 9pm Friday 20th March
  • Contracts are being cancelled due to panic
  • Difficulty in employment
  • Travel bans/restrictions/risks

It is a consensus nowadays (unlike it was a month ago) that Australian GDP will take a big hit. In fact, the Australian economy is the most China heavily reliant economy globally and as such, it is expected to suffer greatly, and while the businesses hurting most from that will be related to travel, tourism, imports and exports – it’s pretty much given that the vast majority of Australia’s SME sector will be impacted negatively.

April 16 Update: Read details about the government’s SME Loan Guarantee Program. The Coronavirus SME Loan Guarantee Scheme – At A Glance SMEs with turnover up to $50 million are eligible for it!

How Long is this Going to Last?

Though Australia may have avoided a catastrophic health system overload, the economic pain may be yet to come. Many countries around the world are still seeing thousands of new coronavirus cases each day. Plus, testing numbers likely do not reflect the actual number of cases and deaths. Given that the global outbreak started from only a few individuals and grew to millions, the number of new cases every day and the re-opening of many societies is worrisome at best. The worst could be yet to come for the world – Australia included.

Though life for Australians may return to “normal” in a number of weeks, life for the rest of the world will still be severely disrupted. Any industries that rely on global travel, foreign importing or exporting, tourism, or large-scale gatherings will likely be on lockdown for some time. Even when they do get customers back, supply chains could be severely disrupted. Though many regions are affected globally, any trade with the United States is especially likely to drastically change in the coming months as they are experiencing an overwhelming outbreak in many areas. If outbreaks resurface across Asian countries, any importing from these countries is likely to be heavily restricted – as the virus could easily reenter Australia and a more devastating outbreak could ensue.

The bottom line: Hold on to any government grants or interest-free loans you can get. If you are in a particularly vulnerable industry, you may need to use the funds to survive and reform your business to fit the new corona-model.

The Cashflow Gap

The Coronavirus pandemic has been seen at best as a temporary three month setback but as each day progresses it develops into an ever growing global concern. We’ve seen a  severe spread of COVID-19 in major global economies throughout Western Europe, the US and China.. Europe and America are now considered the epicentre of the pandemic, whilst Australia is considered the 31st  most impacted out of the 210 countries to have coronavirus cases. Governments around the world are now planning for anf even greater impact than what we’ve already seen in China.

Even if we look at the most optimistic scenario, in which comes summertime, COVID-19 infection rate will drop heavily, turning this into a seasonal disease (which isn’t necessarily true), there is still a cost for months and months in which the global economy and supply chains are to be  shut down. February’s China shutdown has had a ripple effect into the Australian small business economy in March and April.  The USA also became a hot mess of sick but untested individuals who have been spreading the virus freely – it has  shut down the American economy in April, with a planned ripple effect on Australia in May and June. Not to mention the  scenarios in which Coronavirus spreads in its own right heavily down under.

For individuals and businesses alike it is bound to lead to cash-flow deficiencies.

Most small businesses are per-definition very reliant on their rolling income to be able to finance their day-to-day activities. Unlike large corporations who have more cash reserves, many small businesses in Australia have nothing set aside and could quickly face bankruptcy. 

Australia’s Business Response To The Coronavirus Pandemic 

The Australian Government has recently announced a second major economic rescue package worth $66bn, on top of the initial $17.6bn package that was announced on March 12th. The Australian Treasury has also announced more than $100bn in emergency banking measures to prevent a credit freeze. In emergency measures specifically to support the flow of credit to Australian SMEs the Government has pledged to back $40 billion of loans through the SME Loan Guarantee Scheme. In total, the support measures make up 10% of Australian GDP.

Business Cash flow initiatives have been categorised into four areas.

Business Cash Flow Support

The Australian Government is supporting the businesses of Australia to manage cash flow challenges and retain employees during the Coronavirus health crisis. Assistance includes:

Boosting Employer Cash Flow

Aimed at helping SMEs with under $50million in annual turnover to cover the cost of wages. Starting at $2,000 and capped at $25,000 it will equal 50% of PAYG withheld for businesses that withhold tax. Those businesses that aren’t required to withhold tax but still pay salaries and expenses will be eligible for $2,000 minimum payment. This is a tax free payment that’s estimated to help 690,000 businesses employing 7.8million people in Australia.

Supporting Trainees and Apprentices

The Government is helping businesses continue to employ trainees and apprentices by offering a wage subsidy up to 50% of a trainee/apprentices salary, up to a salary of $21,000. Available to firms hiring under 20 full time employees, the scheme is estimated to support 70,000 small businesses hiring 117,000 apprentices.

Forgetting the coronavirus, there are many more Australian small business grants readily available for Australian businesses, and we hope these initiatives will gather even more government investment than in the past, considering these grim circumstances, and enable more businesses to make use of them.

Dedicated Support For Highly Impacted Regions & Industries

$1 billion has been set aside specifically for regions which are heavily dependent on the sectors most impacted by the coronavirus outbreak such as tourism, education and agriculture. Support will be there for businesses to find alternative export markets and supply chains.

On a case-by-case basis the ATO is also helping to provide administrative tax relief for small businesses. Starting in Cairns and expanding to other jurisdictions if required a dedicated ‘shop front’ will be set up for small businesses to visit and see if they will be eligible for tax relief.

Stimulus Payments to Households

Whilst not a direct benefit to small business the government is providing a $750 payment to social security for lower income Australian concession card holders. Pensioners make up roughly half of all 6.5 million eligible participants. The idea that this will help drive domestic demand for consumption in the Australian economy.

Business Investment Support

 

Backing Business Investment

The Government has introduced a 15 month investment incentive (available to 30th June 2021) to support business investment. Eligible to businesses who have a turnover of less than $500 million, they will be able to deduct 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.

Threshold Increase To The Instant Asset Write-off Scheme

The Government has increased the instant asset write-off threshold from $30,000 to $150,000. Whereas before it was only available to businesses with a turnover of under $50 million, this has increased to allow businesses claim with a turnover of under $500 million. In 2017-18 there were 360,000 businesses who claimed deductions through the scheme to the value of over $4 billion.

Better Access To Lending For Small Business

In addition to the coronavirus SME guarantee scheme the Australian Governmenthas announced an exemption from responsible lending obligations for lenders providing credit to existing SME customers. Whether you are restructuring credit with your existing lending partner or they are offering you new credit, the exemption applies as long as you are already a customer.

Even though responsible lending practices do not normally apply to finance used for business purposes, many lenders still like to check if it meets these tests. By providing a temporary exemption from responsible lending obligations, the idea is lenders will provide credit easier and help small businesses get access to credit quickly and efficiently.

The Reserve Bank of Australia has announced a term funding facility to the banking system. It will grant at least $90bn in lending to banks, who in turn should free up lending to specialist lenders and businesses. Whilst the Australian Prudential Regulation Authority (PRA) has made temporary changes to bank capital ratios to allow great levels of lending.

The Government is also looking to assist non-deposit taking institutions in the securitisation market. The Australian Office of Financial Management (AOFM) will have $15 billion to invest in structured finance markets used by smaller lenders.

Temporary Relief For Financially Distressed Businesses

There’s been an increase to the threshold at which creditors can issue a statutory demand for unpaid debt by a business. Including temporary relief that prevents directors from personally being liable for the money the business owes if the business doesn’t enter into voluntary liquidation. One of the most common ways for a company to enter liquidation is by a creditor issuing a statutory demand.

Changes have been made to both the Corporations Act (2001) and the Bankruptcy Act (1996):

 

  • The Government has temporarily increased the minimum threshold for creditors to issue a statutory demand under the Corporations Act from $2,000 to $20,000. 
  • To assist individuals, the Government is making changes to the personal insolvency system regulated by the Bankruptcy Act too. The threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will temporarily increase from its $5,000 to $20,000.

 

Both of these changes will be in place for a minimum of 6 months and the time to respond to either a statutory demand or bankruptcy notice has been increased from 21 days to 6 months. 

The Australian Tax Office (ATO) will also work with small businesses on a case-by-case basis to temporarily reduce or even defer tax payments whilst the coronavirus continues to cause disruption.

What About Sole Traders?

In support measures announced on the 12th March the Government didn’t provide any direct support for sole traders or indeed registered small businesses without any employees. The government’s original belief that those who don’t employ anyone will still benefit indirectly from the money flowing to low-income earners that should quickly enter into the economy. Sole traders are eligible for the business investment initiatives but it’s highly unlikely these will be relevant to their circumstances.

In the new measures, updated March 22nd, further support has been announced for sole traders. By expanding the eligibility for income support it means that in addition to job seekers, parental payments and special benefit recipients, sole traders and self-employed are now eligible too. The scheme has been announced to run for at least 6 months and those eligible for the coronavirus supplement will receive $550 every fortnight. So if you’re a sole trader and your income has completely disappeared you’ll be eligible for both the jobseekers benefit and emergency coronavirus benefit.

Self-employed may also apply for loans under the Coronavirus SME Loan Guarantee Scheme.

 

Australia’s Economic Response To The Coronavirus Pandemic

At the beginning of March the Reserve Bank of Australia cut its interest rates to a then record low of 0.5%, before announcing a further rate cut to 0.25% on the 19th March. For the first time ever the RBA cut interest rates twice in a month and implemented a quantitative easing scheme, coming after an emergency board meeting on Monday, with an impending recession potentially on the horizon. 

The RBA has never launched a quantitative easing package before and we don’t know quite how much they plan to just yet but it will involve the RBA purchasing government bonds through the secondary market with money it has ‘created’.

The now all-time low interest rates will make variable interest rate mortgages and other borrowing related products taken on a variable basis cheaper to repay. Given the unprecedented circumstances we may see banks making changes to their fixed rate products too. 

This is what the RBA Governor Phillip Lowe had to say… 

“The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus…. At some point, the virus will be contained and the Australian economy will recover. In the interim, a priority for the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly.”

Small Businesses Loans for Coronavirus – Online Lenders

If you’re a sole trader or small business that doesn’t feel it’s getting enough support from these new Government initiatives then it’s important to fully evaluate your funding options. Australian banks are likely to be  too slow to approve a loan for small businesses who require a quick cash injection in under 8 weeks. By the time banks will be done with the application, that business may very well go belly up, if indeed they are even to receive approval at the end anyway. That’s why online business loans have been doing so exceptionally well in Australia in the recent years.

There is a large number of lenders who are happy to accept businesses for a variety of reasons including the provision of working capital loans (something your business may require due to the coronavirus impact). ! As long as they believe your business has the means to repay the loan and a solid trading history then you can still be considered in these difficult times. .

The catch? The average interest rate you will be paying could be higher than that with a bank, and given the current circumstances, perhaps even higher than usual. . In some cases these online lenders, who have achieved enormous growth on the provision of unsecured business loans, may now be seeking some form of security from your business in order to secure the loan too. 

The overwhelming advantage to using an online lender is that the whole process of applying and being approved for a small business loan takes only a couple of  days (and in many cases less than 24h). So you can sign up today and know immediately if you can achieve the funding to plug your working capital gap during the coronavirus outbreak. 

 

Below you can find a list of prominent and recommended small business loans that you can use if your business has been impacted by Coronavirus:

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  • Min. Annual Turnover $100,000