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Navigating finance through the coronavirus pandemic

- April 29, 2020 2 MIN READ

Right now, Australia is in the grip of the global COVID-19 pandemic, and so much has changed in a short space of time that some of us are finding it hard to keep up, writes Reuven Barukh, CEO of LIVE Group.

As restrictions continue to affect the way we live and work, there’s no doubt most people right now are focused on building resilience and riding the wave until normality returns.

Australia’s small business sector is also no stranger to the long list of shocks and curveballs brought by the COVID-19 outbreak. Temporary business closures have halted or reduced trade, while many are experiencing staffing issues or interruptions in established supply chains.

With small businesses employing a significant proportion of Australia’s workforce[1], it’s probably not surprising the Australian government has been swiftly rolling out a suite of financial support programs to mitigate the impact. Some of these include wage subsidies, waiving fees and charges for bars, café’s restaurants and trades, and relief from rent[2].

One way the Australian government is seeking to help small businesses improve their cash flow through these tricky times is by increasing the instant asset write-off threshold from $30,000 to $150,000. And while this only applies until the end of the financial year (30 June) 2020, it’s been expanded to include businesses with an annual turnover of up to $500 million – up from $50 million.

In practice, the instant asset write-off means that rather than deducting the annual depreciation value of an asset from taxable income over several financial years, businesses can immediately deduct purchases of eligible business assets up to $150,000 each[3]. Consequently, this could result in an immediate and significant reduction in taxes payable for the 2019-20 tax year.

But with only a few weeks until the end of June, small business owners will need to act fast to take advantage of this one-off expansion of the instant asset write-off scheme. In other words, it’s probably fair to say that any business owner with plans to boost business with new investments over the coming months will be incentivised to bring them forward. But this could present a challenge.

For businesses that don’t have huge amounts of cash in the bank, especially during slow periods of trade, alternative finance options might be the best solution to beating the clock with the expanded instant asset write-off.

In recent years, alternative lending providers have exploded in popularity among small business owners – many of whom already think they better assist with their investment needs compared to institutional lenders[4].

Several of these non-bank lenders have also been announced as official participants of the government’s coronavirus SME guarantee scheme which supports up to $40 billion in lending to SMEs, including sole traders and non-profit organisations.

On the other hand, tricky applications and lengthy processes are often some of the biggest obstacles to smaller enterprises securing meaningful finance options through traditional institutions. Historically, these barriers have made it impractical for some of the nimblest operators, such as high street cafes and tradespeople, to purchase essential new equipment at short notice.

Alternative lending solutions might not be on the radar of every SME just yet. But just like many businesses out there are quickly coming to appreciate the value of new technology to maintaining business continuity during these challenging times, alternative lenders could also be the perfect partner when it appears that fast decisions will lead to fast returns.

References

[1]https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1920/SmallBusinessSectorAustralianEconomy#_Toc29222128

[2] https://www.smallbusiness.nsw.gov.au/get-help/covid-19-coronavirus-information-small-business-owners

[3] https://www.business.gov.au/Risk-management/Emergency-management/Coronavirus-information-and-support-for-business/Increasing-the-Instant-Asset-Write-Off

[4] https://www.businessinsider.com/alternative-lending-nonbank-industry?r=AU&IR=T

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