The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has called on the government to consider funding a revenue-contingent loan program, capped at a percentage of the small business’s annual revenue.
Repayments would be required once turnover reached a designated level and calculated on a percentage of turnover.
“Access to finance is critical to small business survival, particularly with a number of support measures scheduled to end or begin phasing out in the coming weeks,” Ms Carnell said.
She argued that small businesses are currently scared to take on any additional debt because they don’t know what’s around the corner and how any possible further lockdowns might impact their capacity to make loan repayments.
“A revenue-contingent loan would operate in a similar way to HECS, with small businesses only required to start repaying once turnover recovered to an agreed level. If revenue was to drop below that level, payments would cease,” Ms Carnell said.
A recent Sensis report has revealed that even in the best of times, many small businesses struggle to secure finance.
According to its findings, of the dwindling number of small businesses that applied for a loan in the past three months, about one in four had been knocked back. This contrasts to a widespread drop in revenue, with three-quarters of SMEs surveyed reporting a decline and more than 40 per cent expecting sales to decline significantly.
The ombudsman said: “Even with government taking on 50 per cent of the risk under its loan guarantee scheme, loans continue to be subject to bank credit assessment processes, which means small businesses with falling revenue have an uphill battle to secure finance.
“Of course, the proposed revenue-contingent loan would require businesses to satisfy a viability test to be conducted by an accredited financial adviser.
“A revenue-contingent loan would give small businesses the confidence they need to seek funding to get them through this crisis so they can grow and employ.”
In July, the Treasurer announced the extension of the Coronavirus SME Guarantee Scheme to 30 June next year, to support a larger number of small and medium-sized businesses adapt and innovate during the coronavirus crisis.
Up until the end of July, the scheme’s popularity had been limited, with only 15,600 businesses getting their hands on loans worth a combined $1.5 billion, compared with the planned value of $40 billion.