If the government won’t guarantee your recovery loan, what are your options?
Martin Cattach
Working Capital Strategist | Founder of Finance for Business | Call me when the banks say NO.
The SME Recovery Loan Scheme has funded many small businesses through hard times over the past 12 months.
Treasury figures show that $6.4 billion has been loaned to more than 20,000 businesses with turnovers under $250 million since the scheme began in April 2021.??
With the government guaranteeing a sizeable percentage of each loan (initially 80 per cent, then 50 per cent), lenders were far more willing to lend to Australian businesses.
Sadly (for Australian businesses) that scheme ends on June 30th? - and market expectations are that lenders will pull back without guarantees.
The chief executive of Earlypay, Daniel Riley recently commented that the SME recovery loan scheme had made it possible for credit-impaired companies to fund their recovery at a viable cost. ? (source: Troubled SMEs ‘nowhere to turn’ when pandemic loan scheme ends | Accountants Daily )
“When the scheme ends there is going to be general pullback from many lenders,” Mr Riley said. “Some lenders doing unsecured or semi-secured loans, which have a fairly high historical default rate, will need to dramatically increase their pricing to make those loans viable without that scheme guarantee in place.
The cash flow gap between business expenditure and business income is even more extreme in today’s environment, where costs are spiralling, and overheads like sick leave are high.
The SME Recovery Loan scheme might be over - but there are still affordable loans around
Lenders today recognise there is an ongoing market demand for recovery-type loans - and they’re responding to that demand.
In a new round of finance - recently announced -? without the government guarantee, the loan interest rate has moved from 7.5% to 9.95% - which is till a very competitive rate in the FinTech market. ? (And the application process is still as easy as a credit card application.)
It’s not just about “getting a loan” - it’s about improving your business
So don’t just talk to a Finance Broker - talk to a real business expert. ? The answer might be “process change AND cash flow finance”.
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Every business is different, so there’s no one “right answer” - but here are some things to keep in mind.
If you’re thinking like a CFO, then you need to do more than just “borrow more”? - you need to do a detailed analysis of how your business is working and where there are improvement opportunities.
Talk to an expert Working Capital Strategist about how your business can transform to surf through today’s multiple waves of disruption.
Martin Cattach