Small Business Australia is appealing for Canberra officials to replace the SME Recovery Loan Scheme with the revenue contingent loan (RCL) of the Higher Education Contribution Scheme (HECS).
The scheme allows SME owners to access low-rate loans with the option of deferring repayments for up to 24 months to give them more breathing space as they contend with the economic impacts of the pandemic. It has since been extended for another six months from Jan. 1 to June 30, 2022.
However, Bill Lang, executive director of Small Business Australia, deemed the current loan scheme a failure, given that most impacted businesses in retail, hospitality and travel cannot guarantee their success in a given timeframe.
The SME Recovery Loan Scheme was introduced at the onset of the pandemic, and by mid-December, banks had approved over 80,000 loans amounting to $7.3 billion — way below the $40 billion target. Moreover, Federal Treasurer Josh Frydenberg slashed the loan guarantee from 80% to 50% last December as the economy began to show consistent signs of recovery.
“What we’re hearing from small businesses is that they won’t take on risk with a fixed term given the level of uncertainty at the moment,” Lang told The Australian Financial Review. “The rest of that 50% is effectively guaranteed by the small business owner’s personal assets.”
With the help of Bruce Chapman – the brain behind HECS – Small Business Australia was able to create an RCL in which a small business owner could postpone loan repayments until its income reaches pre-pandemic levels instead of the current 24 months.
“A business provided with an RCL will receive financial assistance at the time, now, and will commit to the repayment of the debt depending not on a schedule defined by time, but instead would be contingent on the capacity of the business to do be able to repay, as reflected by the firm’s future revenue stream,” Chapman told AFR. “When things in the future are healthy for a business, RCL repayments would be higher accordingly, which is good news for the government’s budget.
Such a scheme could quickly be implemented through the Australian Taxation Office, Lang said. Chapman had presented the possibility of adopting the RCL in HECS to Canberra officials, but his proposal was met with resistance.
