HECS-style loan scheme could prove a lifeline for businesses says ombudsman

- February 4, 2021 2 MIN READ
Kate Carnell calls for support for family business

The government is said to be considering introducing a HECS-style loan scheme to ensure businesses remain viable once JobKeeper payments phase-out.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the news. Carnell has been a long-time campaigner for a revenue contingent loan scheme. The ombudsman has called for such a program to be introduced since April 2020 to assist small businesses in recovering from the impact of the coronavirus crisis.

Loan scheme could provide critical cash flow

Carnell says the program would provide otherwise viable small businesses with the cash flow they need to survive the next 12 months, particularly as JobKeeper is discontinued.

“Access to credit will be critical to keeping small businesses afloat as various government support measures are withdrawn, rent relief ends and those overheads start to pile up,” Carnell says.

“We know that many small businesses haven’t been able to fully recover from the COVID crisis so this targeted support measure could mean the difference between life and death for them.”

HECS-style scheme would  take the pressure off small business

Under the Ombudsman’s proposal, the revenue-contingent loan program for small businesses would operate similarly to HECS, requiring borrowers to repay when their turnover reaches a designated level.

The loan would be Federal Government-funded and capped at a percentage of the small business’ annual revenue. Applicants would need to satisfy a viability test conducted by an accredited adviser to be eligible.

“Sudden lockdowns and border closures have hit small businesses hard in recent weeks – it’s no wonder they are reluctant to take on additional bank debt when conditions can deteriorate without warning,” Carnell says.

“Even in the best of times, small businesses have struggled to secure finance. Taking into account the enormous challenges that they are now facing, the impact of insufficient working capital could be devastating for the small business owner and staff, not to mention the broader economy.”

Carnell is not alone in her call for the scheme, amongst the backers is Australian National University economic modeller Warwick McKibbin, who is on a Treasury advisory group for the coronavirus response.

“A revenue contingent loan scheme would give small businesses the confidence they need to seek funding, so they can survive and employ again,” Carnell concludes.

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