A Complete Guide to Government Support And Alternative Funding Options

UPDATED: Read details about the government’s SME Loan Guarantee Program, now named the The SME Recovery Loan Scheme. The Coronavirus SME Loan Guarantee Scheme –At a glance SMEs with a turnover up to $50 million are eligible for the Coronavirus SME Loan Guarantee Scheme – covering loans up to $5,000,000 with 80% of the loan secured by the government… at up to 7.5% interest rate!

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A fast, robust and firm response from Australia has been able to limit the health impact coronavirus has had on the country. By total cases, with just over 29,000, Australia is reported to be the 112th most impacted country in the world. 

Still though, the impact on the economy remains a very real issue. Australia’s borders remain closed to non-Australian citizens, supply chains and exports to other countries have been impacted and restrictions still apply in the state of Victoria. Industries including tourism, the arts and export/import remain some of the most severely disrupted. 

In light of this, the government has extended a number of its emergency support packages which are designed to keep businesses afloat and staff employed. These include:

• Changes to the instant-asset write off scheme
• JobKeeper payments
• The SME guarantee scheme
• The term funding facility

In this article, we run through each of these support measures and more. Including how long they’re running for, what they mean for small businesses, and how to apply.

How Long Will the Coronavirus Support Measures Last?

As it stands, all of the coronavirus support measures are expected to finish by the middle of 2021. It’s certainly possible that the schemes may get extended again – many of them were originally set to expire at the end of 2020. The current deadlines are as follows:

The Reserve Bank of Australia has already confirmed that the term funding facility will not be extended beyond June 2021. The $90 billion JobKeeper payment scheme is a hot topic for discussion with many campaigning for another extension. It’s estimated that should it expire at the end of March 2021, over 250,000 Australians could become unemployed. Whether the SME guarantee scheme is extended, will largely depend on the uptake of phase 2 and how much remains in the $40 billion budget.

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.

Apply for an Government Backed Loan under the SME Program

The Cashflow Gap

The COVID-19 outbreak and responding measures to contain the spread have significantly affected small businesses in all industries. Around 70 per cent of all businesses surveyed by the Australian Bureau of Statistics (ABS) in June 2020 reported a decline in turnover relative to the same time last year. The only industry in which there were more respondents who reported an increase in turnover was mining – every other industry had a higher share of respondents who reported a decline in turnover.  Small businesses were twice as likely to record a large decline in revenue as large businesses. This is consistent with small businesses being more strongly represented in the industries that have been most affected by the COVID-19 restrictions, such as cafes, restaurants, arts and recreation. In these industries, there was a greater portion of respondents who reported a decline in turnover of between 50-100% than a fall in turnover between 0-50%.

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 

Last year, the Australian Government announced two major economic rescue packages. The initial package, worth $17.6bn, was announced on March 12th, and was followed by a much larger rescue package of $66bn when it became apparent the impact of coronavirus would be felt for much longer than originally impacted. 

The Australian Treasury also announced more than $100bn in emergency banking measures in an attempt to prevent a credit freeze, although the success of the schemes is up for debate. As can be seen by our Australian SME lending research, lenders have still been reluctant to extend credit to SMEs, and lending is down year-on-year. Though surely, without these measures in place, lending volumes would have plummeted even more. In total, the coronavirus support measures make up around 10% of Australian GDP.

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.

The JobKeeper payment has reduced in size but until the end of March 2021, small businesses can still claim up to $1,000 per month for each member of staff they retain. As before, businesses are required to prove to the ATO that revenue is down year-on-year.

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 was set aside specifically for regions 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 provided 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 Government has 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?

Sole-trader business loans are widely available in Australia.

In the support measures announced in March 2020, 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 and that it 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.

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 2020, 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 March 19th. 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, with an impending recession potentially on the horizon. 

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 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: