The Australian Small Business and Family Enterprise Ombudsman is urging the federal government to establish a new loan scheme for small businesses to provide them with the cash flow they need to survive the next 12 months.

With government support measures being withdrawn, banks continuing to subject small business borrowers to onerous credit assessment processes, rent relief ending and the impact of recent lockdowns and border closures, Kate Carnell said access to finance could mean the difference between life and death for many small businesses.

“Unfortunately, it’s a perfect storm scenario, especially for those small businesses that haven’t been able to fully recover from the COVID crisis,” she said.

“Access to credit will be critical to keeping those otherwise viable small businesses afloat, particularly over the coming months as support measures are phased out and the bills start flowing in again.”

Carnell is calling on the federal government to introduce a revenue-contingent loan program for small businesses, similar to HECS, requiring borrowers to repay when their turnover reaches a designated level.

The loan would be 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 heavily impacted small businesses in recent weeks – it’s no wonder they are scared to take on additional bank debt given conditions can deteriorate so rapidly,” Carnell said.

“Even in the best of times, small businesses have struggled to secure finance. Taking into account the enormous challenges they are now facing, the fallout of insufficient working capital could be devastating, not only for small business owners and their staff, but for the broader economy.

The latest data from the Australian Securities & Investments Commission shows external administrator appointments were up by 23 per cent in December 2020, and economists are predicting the number of businesses entering voluntary administration will rise this year.

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

“It’s essential to Australia’s economic recovery.”

Kate Carnell

Last month, the Small Business Ombudsman called for changes to the way the government’s $128 support package for travel agents is administered.

Carnell noted the differences in the way annual turnover is reported within the sector, with a lot of the smaller operators only counting their commissions rather than the total amount of the transaction.

“It’s quite complex, but it’s really important – this is $128 million and there’s a lot of smaller travel agents that are sweating on this money,” she told ABC News.

“It will be the difference between life and death for them.”

The Small Business Ombudsman is also calling on the federal government to change JobKeeper rules to allow struggling small businesses to replace staff.

Carnell said that as the economy recovers from the COVID crisis and more jobs become available, small businesses that are still trying to get back on their feet are losing their staff and cannot hire replacement employees under JobKeeper rules.

“JobKeeper was reduced again on 4 January 2021, and with some eligible businesses unable to afford to top up wages, they are having to reduce the hours of their staff,” she said.

“It means staff are resigning to go to jobs offering more hours and pay.

“While the JobKeeper program was originally designed to allow businesses to keep their existing staff, the economic recovery is presenting new challenges for some small businesses.

“Under JobKeeper rules, eligible businesses cannot replace their staff with a new staff member and still attract the government payment.

“Unfortunately, this rule has the unintended consequence of increasing the divide between the ‘haves’ and ‘have nots’ in the small business sector.”

Earlier this week, Australian Federation of Travel Agents CEO Darren Rudd revealed that he had written to Prime Minister Scott Morrison and Tourism Minister Dan Tehan to reinforce the need for ongoing tailored support for the sector, including an evolution of JobKeeper.

Featured image source: iStock/bob_bosewell