In this incredibly daunting time, there’s plenty of confusion out there as to what help is available for businesses; we’re fielding so many calls & emails that we thought it best to lay it out (although please note that it may be a challenge to keep this up to date, given how fast this is moving).
We’re unfortunately only at the very beginning of what is already proving to be an incredibly challenging time for the entire nation, as well as the world. Many businesses are going to struggle to stay afloat, many will fail, whilst a very small proportion will do incredibly well, such as grocery stores, road freight transport (oh and toilet paper manufacturers).
For individuals and families, Westpac have forecast an unemployment rate of 11%, matching the peak in 1992; there’s talk by others that it could get to 15%. Scary stuff.
What Most Banks will do for “Small Businesses”
What’s a “small business”? Generally speaking it will be businesses with borrowing less than $3m, although Macquarie has specifically stated $5m and a number of banks haven’t mentioned a number (so TBA from bank to bank).
The ABA (headed by former Qld Premier Anna Bligh) is an association of 22 member banks in Australia. They’ve come to a head-line agreement so that there SHOULD be relative consistency across the board.
In their press release of 20 March, they stated “Banks are putting in place a fast track approval process to ensure customers receive support as soon as possible” – the challenge right now is that most of the banks just haven’t yet worked out what that is yet. Hopefully they’ll all be sorted in the next few days.
The ABA’s Financial Hardship website has some valuable information on it – including links to many of the banks’ COVID19 support web pages – so check that out first.
What the Banks have agreed to, at a high level (more on that in a second) is:
- Repayments deferred for up to 6 months (on most loan types)
- Interest rate reductions (with very wide ranges from bank to bank)
I say “at a high level” because we’re hearing conflicting messages between banks, ranging from “you need to use all of your cash and redraw availability first”, through to “if you call and tell us you need it, it’s approved”. So either the banks’ agreement within the ABA circle was far too loose, or the intended strategies are not making their way down the line via clear directives. Yet to play out there…
Government Guaranteed Loans
One of the Federal Government measures announced was a 50% guarantee of unsecured loans up to $250,000 – here’s the official fact sheet:
As an example, CBA seem to have worked out their plan – extract from their latest communications to us:
“$250,000* (lending criteria applies) with no establishment or account fees, and no repayments required for 6 months for business with less than $50 million annual turnover. For the first 6 months, interest will be deferred and capitalised at a reduced variable rate of 5.5%, reducing to 4.5% on 3 April 2020. From 6 months, principal and interest repayments will be required“
Other banks are catching up and should have similar terms as far as loan amount and repayment holidays, BUT… (1) interest rates are likely to vary markedly between banks/lenders, (2) each lender’s own credit criteria will apply and (3) banks are very likely to put their initial focus for these loans on their existing clients. So it’s certainly worth investigating options via a professional.
What about Businesses with larger borrowings?
To be blunt – there’s not necessarily any rules or specific directives. It will vary from bank to bank. Same goes for non-bank lenders of all types.
Borrowers of this size CANNOT just expect to stick out their cap and say “please sir can I have some more?”.
What is required? In short:
- Have completed your own internal business review first, to work out where and how costs can be cut;
- Be able to clearly articulate what the impacts MAY be… Noting that everyone is playing a guessing game here, so nobody is expecting your forecasts to be accurate to the dollar – but a forecast with 30 to 60 days of ZERO revenue is probably a pretty fair “worst case scenario”, with the ensuing “best case” for many likely to then be a period of revenue below historical averages.
- Communicate clearly & concisely to your Bankers, to make their life easy.
Bankers are about to drown in a tsunami, with nearly every single one of their clients hitting them with funding requests
so they will NOT have time to spend on analysing half-baked packages of information with unclear requests.
On top of the bankers getting overloaded with requests from their clients, their back-office support teams are based in India and Philippines. Which are both on nation-wide lock-downs. So they don’t have support. Hence why it hit the headlines that CBA’s CEO asked Qantas’s CEO to let them use their staff during this period (someone needs to actually punch through all of these requests through the computer, prepare documents, send them out, check them when they come in, input the changes to the computer!).
Need Help Communicating & Negotiating?
At STAC Capital, we can provide professional advisory services to businesses seeking assistance to:
- Help you & your team prepare Formal Written Submissions that bankers will value
- Communicate effectively with bankers
- Negotiate optimal outcomes
You can have confidence in STAC supporting your business, noting that:
- Every staff member has previously worked within the banks for many years, with Directors all having been in Senior Management roles;
- Bankers at each one of the banks regularly and specifically comment on their respect for the quality of work and insight we provide them with when putting deals together, putting us in strong standing internally;
- Our bespoke service & fee models allow us to work in the best interests of a client (as opposed to finance brokers who must refinance a borrower to another bank in order to get paid).