Looking for finance in trying times
In normal times, business refinancing can be a straightforward matter, but the situation we find ourselves in has proven to be anything but. That’s why securing working capital during the COVID-19 crisis may mean thinking outside the square.
Government-backed loans are a good option for businesses which meet the eligibility and lending requirements, according to accountant and CIA Tax founder Steve Enticott.
Under the Coronavirus Small and Medium Enterprises Guarantee Scheme, launched in March, the government guarantees 50% of new loans by eligible lenders to SMEs, up to a maximum loan size of $250,000 per borrower.
Available until 30 September 2020, loans offered under the scheme will be for a maximum of three years, with no repayments required for the first six months. The finance is unsecured, which means businesses don’t have to put up an asset as security for the loan.
However, lenders can continue to apply their own credit criteria. That means applicants whose businesses weren’t in great shape prior to the COVID-19 crisis may struggle to gain approval.
“Unless you’re in one of those industries that’s going ballistic at the moment, it’s unlikely there’ll be a bank with an appetite to lend to you,” Enticott says.
“The coronavirus has put many businesses in a beggar’s position. We’re not in a position to make demands and refinancing may be difficult.”
Exploring other options
Other options for business owners who need to access additional capital include:
- Taking out an unsecured loan (however, these may come at a higher interest rate)
- Making an early withdrawal of up to $10,000 a year from superannuation in the 2019–20 and 2020–21 financial years
- Selling existing plant and equipment to free up cash, then replacing them using borrowed funds.
As the end of the financial year draws closer, more vendors are likely to offer trade-in deals to enable business owners to do this and take advantage of the government’s $150,000 instant asset write-off.
A loan from family members or friends who have cash in the bank earning minimal interest is another possibility. However, if you do go down this path, secure it to an asset at fire sale value, so the lender knows their funds are safe, and make sure the transaction is legally documented, Enticott counsels.
The government’s Boosting Cash Flow for Employers and JobKeeper initiatives could also provide a much needed injection of funds.
Refinancing your business in uncertain times can be challenging. Understanding your capital and cash flow requirements and exploring your options can help you find the best solution for you and your business.
To learn more about navigating your business through the COVID-19 crisis, visit our free resource centre.