23rd March, 2020

Loans and lenders: Is now the right time to take out a small business loan?

Thanks to COVID-19, things are changing for Australia. How can you make certain your business is in the best possible position for the upcoming weeks and months? For some, a small business loan may be the answer, but it must be a carefully considered one.

Many of us already have had a king hit to sales revenues and are expecting quite a few knocks for the months to come. Now, more than ever, cash flow becomes a number one priority for survival.

There is one initiative for small business owners that’s particularly promising, and can be accessed right now.

The Banking Association of Australia has announced that it will allow a six month loan deferral for all small businesses affected by COVID-19.

This is great news for businesses that already have a loan with a bank. All you need to do is register for this scheme through your lender.

Other measures that have been mentioned by the government include access to low interest loans.

When is it a good idea to access low interest loans?

A low interest loan is the most welcome type of loan for a business but it still borrowed money that will need to be paid back at some time in the future.

Here are some questions to consider when determining if borrowing money is appropriate for you:

  • Is it going to help you stay in business?
  • How risk averse are you?
  • Will the funds help you leverage an opportunity right now?
  • Do you need funds for the short term or the long term?

Opportunity doesn’t always arrive for every business, but in these times of COVID-19 there have been some positive business stories.

Supermarkets and food stores have experienced massive sales equivalent to Christmas spending allegedly up to three times over.

A face mask manufacturer in regional Victoria is looking to employ up to 40 staff during this crisis which has turned into a boom time for them.

Having access to funds to help them leverage exponential growth is vital.

The sales will come from the worldwide demand for face masks, but they first need to be manufactured, and that requires funds.

Businesses that are able to pivot and re-invent themselves to become more relevant to their customers’ changing requirements may also need funds to enable this to happen.

For example, purchasing new equipment such as monitors and web cameras, to enable staff to work remotely or to offer services online can be a wise investment.

“If access to funds will help you to operate in the ‘new normal’ then borrowing money makes sense”, said financial planner and accountant for Navacue Accountants, Ian Fox. “Businesses may need loans to remain in business.

“However, they need to be confident they will still be in business at the end of the crisis,” said Fox.

When is it not a good idea to access a low interest loan?

  1. If you have no way to pay it back
  2. If you don’t have a strong appetite for risk
  3. If you are not confident you will still be in business at the end of the crisis

Your accountant will be able to assist you to determine the best action for your business to take, and whether you should be approaching major banks, or smaller fintech lenders.

In fact, “this is the time that your accountant should be working hard for you,” said Fox. “This is when they get to showcase their skills and financial abilities aside from preparing your BAS and your tax.”

So, if nothing else, you’ll want to keep solid lines of communication with your accountant and any other accredited business advisors you have.

“They can advise you on what you are eligible for”, said Fox. “Good banks have already started contacting their customers and offering ways they can help.”

What else can my bank to do to help my business through the COVID-19 crisis?

Some suggestions for things to ask from your bank at this time are:

  • To register you for the six-month loan deferral scheme
  • If you have a mortgage, ask your bank for a deferral on mortgage payments without penalties
  • A reduction or waiver of any bank fees for a period of three to six months
  • Discuss options for any overdraft facilities to assist with cash flow
  • Reduction in credit card fees and interest rates, reduced minimum repayments

Ask your bank if they have any other suggestions for how they might be able to make things easier for you right now.

There’s absolutely no harm in asking your lender for help. In these challenging times it seems as though you have an even greater chance of the bank saying yes.

‘With crisis comes opportunity.’ – ancient proverb

When it comes to definitive financial advice, now’s your opportunity to talk to an accredited business advisor and see if a loan would work for your business now and in the future. You can begin searching for an advisor here.