The Australian Banking Association and the Big Four Banks have announced that interest and principal repayments on both Small Business loans and Home Loans can be deferred for up to 6 Months.
There are a lot of questions being asked on exactly how this will work, and what is the best course of action for your businesses cash flow. This article will serve as a guide to address these queries:
If I stop making loan repayments, will I continue to be charged interest?
Yes, interest will continue to accrue on the loan if you defer loan and mortgage payments. It can then be paid off over the life of the loan once you start to make repayments. Alternatively, the term of the loan could be extended to include this additional interest cost.
Is deferring loan repayments a smart decision financially?
If cashflow is a concern, whether it be for your household or business, we most definitely recommend you defer loan and mortgage payments. Whilst you will be paying more in interest in the long term, continuing to pay your bank loan may result in defaulting in this current harsh economic climate. It is still unclear how long the current COVID-19 situation will continue.
I am confident I can continue to meet my repayments, what should I do?
It is still worth having a chat to your bank manager. Discuss that you are concerned your business / wages may be affected by COVID-19 shortly, and you want the option of deferring loan repayments. You can still continue to make repayments, however the option is there if your circumstances change.
My Interest Rate is too high. What can I do?
Get in contact with your bank manager regarding a restructure of your loans and a review of your interest rate. If no luck, consider consulting other banks and compare your alternatives.
How do I approach my bank or consider another.
It is critical you speak to a senior person in your bank so you don’t waste time.
You might also consider using a mortgage broker and there are many good ones you can contact. But be careful as we are being made aware of some concerning practices in this area.
What other assistance is available to me as a bank customer?
When experiencing financial hardship, banks are offering assistance such as waiving bank fees and offering further credit secured by the government (50% guarantee)
What is the Government 50% Loan Guarantee?
The Government will guarantee 50 per cent of new loans issued by eligible lenders to Small and Medium enterprises. This will be available from the major banks until 30 September 2020. The loans will be unsecured, meaning an asset as security is not required. The maximum term of the loan will be 3 years, with a maximum loan amount of $250,000. This measure effectively makes it easier for small and medium businesses to access credit. Your bank will still conduct a credit assessment before approving any new loans but the normal financial information requisites are not as stringent as traditional borrowing.
Of the governments announcements, this is the hardest to get a handle on.
Our experience so far is that the banks are applying ‘same ole’ credit testing and we can’t see where this opportunity has delivered any value yet.
For assistance in understanding your cash flow requirements currently, defer loan and mortgage payments and your financial subsidy options. Contact our business support accountants today.