THE Australian Small Business and Family Enterprise Ombudsman Kate Carnell said an overhaul of lending laws proposed by the Federal Government would offer a necessary funding injection to the small business sector.

Under the plan announced today by Treasurer Josh Frydenberg, lending laws will be changed to lift onerous barriers to small businesses applying for loans.

“Access to finance is critical to small business survival, particularly as support measures are tapered over the coming months,” Ms Carnell said..

“The reforms outlined today would give small businesses the confidence they need to seek funding to get through this crisis, so they can grow and employ. 

“Since the Banking Royal Commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks.

“The pendulum has swung too far and now is the time to correct this imbalance which is harmful to small businesses.   

“Even in the best of times, many small businesses struggle to secure finance, with a recent Sensis report revealing that of the dwindling number of small businesses that applied for a loan in the three months to August, about one in four had been knocked back. There’s a good chance the onerous small business loan application and bank assessment process is partly to blame. 

“We are aware of small businesses that have been asked for all sorts of documentation by the banks - even for loans that have been 50 percent guaranteed by the Federal Government – including director guarantees, which really means the family home. It’s no wonder small business owners are reluctant to borrow," Ms Carnell said.

“Importantly the banks will still be accountable to ASIC and the Government has pledged greater protections for vulnerable borrowers.

“ASIC will also have the power to impose penalties for prohibited or excessive fees and interest charges.

“Small business borrowers should always ensure their lender is an AFCA member and to go their trusted accredited financial adviser before taking out a loan.”

www.asbfeo.gov.au

By Leon Gettler >>

AUSTRALIA’s recession and double digit unemployment seems ripe territory for Grameen bank, the microfinance and community development founded in Bangladesh which provides small loans (known as microcredit or ‘grameencredit’) to the impoverished without requiring collateral.

Adam Mooney, the CEO of Grameen Australia, said the bank was committed to boosting employment through supporting people on low incomes to set up their own small businesses in Australia’s post-COVID future, with a particular focus on women, migrant groups and the Indigenous community.

He said Grameen Australia was bringing a successful model that has worked all across the world to reach over 300 million people, particularly women, to start their own micro-enterprises. 

It is a model that has not only worked in Bangladesh and the Philippines but also in developed economies like the United States.

He said COVID-19 was the perfect opportunity for Grameen to expand into Australia.

“As we see national income support mechanisms like JobKeeper and JobSeeker tapering off, we’re coming into the market at a time to be able to make sure that we’re seeing this incentive to work that the government is so keen on, that we’re also keen on, providing opportunity to work,” Mr Mooney told Talking Business.

WORKING FROM HOME WORKS

Grameen is pitched at micro-enterprises in communities, particularly people working from home. The bank gets invited into communities and targets women and men, forming groups of five or six, to develop their own business idea and get a small loan from Grameen and also receive mentoring and training.

Grameen will approach communities and find two-to-five female leaders that want to form a group.

The Grameen model is unique because it does not take any physical collateral but encourages ‘social collateral’ where the group members feel an allegiance to each other. The group will then present the idea with cash flow analysis, marketing analysis and risk analysis and logistics capabilities and Grameen will look at what working capital and fixed capital they need. For example, they may need loans for weaving looms or sewing machines, and then Grameen provides them with small loans of $5000-$10,000 with payments to start when the income begins to come in.

POWER OF GROUPS

Groups are encouraged by Grameen to come together to share their experience and expertise.

“This is really the best of community led, strength-based economic development and this is what we’re all yearning for in the world right now,” Mr Mooney said.

He said the response around the world had been overwhelmingly positive.

“What we’re seeing all around the world, particularly in the states, is a 99 percent repayment rate for these loans being advanced, but more importantly, we’re seeing a transformation of confidence, of dignity, of control and economic security,” he said.

INDIGENOUS OPPORTUNITY

Mr Mooney said the approach of building communities really lends itself to Indigenous culture and migrant communities where there is strong loyalty and an attachment to clan.

It also has the potential to create social enterprises where communities create businesses that put their surpluses back into the community and bring business into the community.

He said in the last month Grameen had been approached by large banks, insurance companies, professional services firms and philanthropic investors. It is also talking to the Federal and State Governments about grants.

It is also looking at setting up pilot programs in places like Broadmeadows, Footscray and Wyndham in Victoria, and areas like Fairfield in New South Wales, along with communities in Queensland and the Northern Territory.

Mr Mooney said COVID-19 had been an accelerator for Grameen banking services in Australia.

www.grameenaustralia.org

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.  

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THE AUSTRALIAN Small Business and Family Enterprise Ombudsman, Kate Carnell has urged the Federal Government to abolish fringe benefits tax (FBT) for at least two years "to provide a much-needed cash flow boost to the economy and support struggling small businesses".

In a letter to Treasurer Josh Frydenberg, Ms Carnell argued this small change to the tax system would provide a big boost to small businesses in the industries hardest hit by the COVID crisis.

“Small businesses are unfairly impacted by the fringe benefits tax,” Ms Carnell said.

“As it stands, small businesses are required to pay FBT on items that large businesses often provide in-house to retain staff such as meals, gyms and childcare centres. Larger businesses can actually claim some services as business expenses, without paying FBT.

“But small businesses that provide the same benefits to their teams offsite have to pay FBT," Ms Carnell said. “A the same time, high rates of FBT acts as a disincentive to businesses spending with small businesses, particularly those in the hospitality and tourism sectors which are hurting the most right now. 

“A weekend away, lunch at a restaurant or a team bonding game of golf, all attract FBT.  

"FBT is discouraging businesses from spending with small businesses, which reduces the amount of money flowing into the economy.

“Fringe benefits tax accounted for less than 1 percent of government revenue in 2019/2020 and that figure is likely to be even less in the current financial year due to the economic downturn," she said.

“Abolishing the FBT would cost no more than $4 billion a year to the government but it would be an effective support measure for small businesses and also stimulate cash flow into the economy at a time when we need it most.

“EY modelling done on behalf of Tourism Accommodation Australia (TAA) and the Australian Hotels Association (AHA) indicates suspending FBT on accommodation, meals and beverages alone, would produce economic returns of up to 3.8 times the direct cost to government.” 

www.asbfeo.gov.au

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THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell said small businesses would be more likely to take out a revenue contingent loan, than seek finance under the government’s current small-to-medium enterprise (SME) loan guarantee scheme.

The small business revenue contingent loan, as recommended in the Ombudsman’s COVID-19 Recovery Plan, would be Federal Government-funded and capped at a percentage of the small business’ annual revenue.

Repayments would be required once turnover reached a designated level and calculated on a percentage of turnover.

“Access to finance is critical to small business survival, particularly with a number of support measures scheduled to end or begin phasing out in the coming weeks” Ms Carnell said. 

“Right now, small businesses are scared to take on any additional debt because they don’t know what’s around the corner and how any possible further lockdowns might impact their capacity to make loan repayments.

“A revenue contingent loan would operate in a similar way to HECS, with small businesses only required to start repaying once turnover recovered to an agreed level. If revenue was to drop below that level, payments would cease," Ms Carnell said.

“Even in the best of times, many small businesses struggle to secure finance, with a recent Sensis report revealing that of the dwindling number of small businesses that applied for a loan in the past three months, about one in four had been knocked back.

“That research also showed about three-quarters of SMEs surveyed reported a drop in revenue, with more than 40 percent expecting sales to decline significantly.

“Even with Government taking on 50 percent of the risk under its loan guarantee scheme, loans continue to be subject to bank credit assessment processes, which means small businesses with falling revenue have an uphill battle to secure finance," she said.

“Of course, the proposed revenue contingent loan would require businesses to satisfy a viability test to be conducted by an accredited financial adviser.

“A revenue contingent loan would give small businesses the confidence they need to seek funding to get them through this crisis, so they can grow and employ.”

www.asbfeo.gov.au

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