by Mike Phipps - Mike Phipps Finance
05th May, 2020
Financial advice: matching support packages to SMEs is a moving target
I remember after the GFC I said something like, wow, now I’ve seen everything. Wrong!
We understand that these are challenging times. I use the term challenging because really scary and uncertain just sounds too confronting!
Please know that we are here for our clients and indeed anyone who needs us.
Having said that, the banks have indicated that to expedite positive outcomes they are dealing directly with broker introduced borrowers and that’s fine. If you need us to support your case and liaise with your banker, we are here. If you feel your bank is not stepping up please understand that they are not resourced for these unprecedented events and are doing their absolute best. I think it’s fair to say that no bank has built its staff, procedures and IT infrastructure on the basis of a worldwide pandemic.
Here’s the latest we have albeit new announcements and government policy are making most information general at best.
What assistance can I get from my bank?
• Generic in $3m to $5m existing debt range
• Six-month deferred repayments three months + a further three on review in some cases
• Overdraft on a case by case basis
• Equity access on a case by case basis
• $5m to $10m borrowers by application
It is important to appreciate that until recently the definition of a small business (SME) included lending up to $3m. The matching of support packages to SMEs has been a moving target as the government sought to find a more appropriate defining debt level. The current level is now $10m albeit the banks are approaching borrowers in different ways depending on debt level.
How do I apply?
• Many banks will have already been in touch proactively
• CBA – automatic up to $5M for example.
• Westpac – online or via relationship manager
• Suncorp – Relationship manager
• ANZ – Relationship manager
• Bank of Qld – relationship manager – proactive
• NAB – via relationship manager
• Macquarie Bank – via relation manager
How long will it take?
Depends on bank and demand. A fast-moving target. There are simply too many requests in bank systems to be sure. We commend the CBA for automating the process via an opt out system and encourage the banking industry to do likewise (within the confines of their IT capabilities).
Will my payments come out of my account while my application for assistance is in process?
Depends on the bank. Some are cancelling loan repayment Direct Debits (DDs) as soon as a borrower applies.
If I apply for assistance and a DD bounces before my loan payment deferment is approved will my bank put me into default?
No. The bank will backdate the assistance package and adjust your loan accordingly.
Can I redraw advance payments?
Depends on your loan terms and features.
Should I move advance payments to a separate account?
The impact on advance payments (also known as redraw facilities) as a result of loan repayment deferrals and capitalising interest will have a variety of impacts depending on your lender. We think there is some risk that as interest capitalises advance payment balances (and hence funds that can be redrawn) will adjust down. If you think you will need to rely on loan redraws to get through it may be worth thinking about making those redraws now.
Are new loans being approved?
Yes, but not in any great volumes. Applicants will need to demonstrate why the crisis is unlikely to impact them or borrow at a level that considers any crisis downside. We are open for business.
How are banks instructing valuers?
Case by case and obviously a moving target. Most valuers are seeking three-year figures plus a post crisis cash flow and are attempting to arrive at a likely post-crisis value. We expect that for existing loan reviews and rollover arrangements, lenders may choose to set aside or defer new valuations.
What happens if my BC can’t pay my managers salary?
With a likely spike in unemployment and rent arrears it may be that some unit owners will be unable to pay levies. In the highly unlikely event that this results in the BC salary being unable to be paid BCs can borrow or access overdraft limits to ensure essential services such as caretaking are maintained.
Can I pause equipment lease and credit card payments?
Yes. Contact your lender.
What about my housing or property investment loan?
Home loans and property investment loans to individuals are being treated similarly to business loans.
What other assistance is available?
Federal Government Corona Virus SME Guarantee Scheme: These loans will be provided by participating banks which will be the majors and regionals as we understand it. Kick off date is April 2, 2020. There are a couple of terms in the link below that should be clearly understood. Firstly, the government is not guaranteeing you will get the loan. It is guaranteeing the loan to 50 percent of its value to the lending bank. Secondly, the term repayment holiday does not mean interest-free. The CBA web site via the link below under Resources has an example of how the product will work including indicative interest rates.
This link will give you a summary of what’s on offer: www.treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Supporting_the_flow_of_credit_1.pdf
The Qld Rural and Industry Development Authority is offering maximum $250,000 jobs support loans. The loans are by application. See link below. We expect other states to follow.
As noted in the guidelines here, to be eligible for a concessional loan, applicant businesses must have been established from July 1, 2017.
Remember, the more you redraw the higher your loan balance and greater the impact of capitalising interest.
Will the bank still assist me with deferred repayments if I have advance payments?
Yes. The same assistance applies.
If my loan payment is put on hold how does capitalised interest work?
Interest charges to the loan and, with no repayments being made, the loan balance rises each month. As such you are essentially paying interest on interest as the balance rises but for most borrowers the after-tax impact with be negligible.
What happens to my loan term once the crisis is over?
In most cases the bank will extend the loan term by the period of the repayment holiday which should result in payments being in line with what was being paid before the crisis.
What if I am unsure if I will need assistance?
Our advice is to seriously consider taking any assistance on offer. The end game of the virus emergency is unclear and with the possible risk of delayed assistance processing times better to be safe than sorry. Cash flow is king!