SMB advocate urging Govt. to offer HECS-style loan scheme

Small business ombudsman Kate Carnell is urging the federal government to introduce a revenue-contingent loan scheme for small businesses to provide cash flow for the upcoming year.

Carnell, who heads the office of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), said the scheme could be similarly structured to the Higher Education Contribution Scheme (HECS), where borrowers would start repaying the loan once their turnover reaches a designated level.

The push comes following the reduction of the JobKeeper subsidy earlier this month, which dropped the payments by between $100 to $200 per fortnight.

Carnell also cited banks subjecting SMB borrowers to “credit assessment processes”, the end of rent relief and the impact of recent lockdowns and border closures.

“Unfortunately it’s a perfect storm scenario - especially for those small businesses that haven’t been able to fully recover from the COVID crisis,” she said.

“Access to credit will be critical to keeping those otherwise viable small businesses afloat, particularly over the coming months as support measures are phased out and the bills start flowing in again.”

Carnell said the scheme would be Government-funded and capped at a percentage of the small business’ annual revenue. Applicants would also be subjected to a viability test to be eligible.

“Sudden lockdowns and border closures have heavily impacted small businesses in recent weeks – it’s no wonder they are scared to take on additional bank debt given conditions can deteriorate so rapidly,” Carnell added.

“Even in the best of times, small businesses have struggled to secure finance. Taking into account the enormous challenges they are now facing, the fallout of insufficient working capital could be devastating, not only for small business owners and their staff, but for the broader economy.

“The latest ASIC data shows external administrator appointments were up by 23 percent in December 2020 and economists are predicting the number of businesses entering voluntary administration to rise 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. It’s essential to Australia’s economic recovery.”