Low-interest loans to help small businesses rebuild after pandemic and floods

Small business owners have until June this year to take advantage of a special loan designed for those affected by the pandemic and last year’s floods.

Under the federal government’s Small Business Recovery Loan Program, participating banks and financial institutions offer business loans with interest rates ranging from zero to low and with more flexible repayment terms.

The name of the product varies from lender to lender – and not everyone offers it – but if you are a small business owner and can demonstrate the impact of COVID or flooding on your business by 2021, you can simply contact your bank and find out which loan comes under this system instead of a traditional professional loan or by extending your current loan.

Backed by a 50% government guarantee

Part of the reason the loans have different terms is that the government guarantees 50% of the loan.

This contrasts with an earlier version in 2020, which had an 80% guarantee. It is best to check with your bank or lender how your loan would be structured if you have already applied for a similar product but under the earlier program with the higher 80% guarantee.

The original program stopped taking applications at the end of December, but it was extended until June, but with the weakest guarantee.

Interest rate capped at 7.5% per annum

The government has also guaranteed small business owners the precondition that no bank can offer an interest rate higher than 7.5% per annum under this scheme. This means that loan seekers can get a better deal than comparable personal loans or business loans on the market.

An analysis of the major banks – ANZ, Commonwealth Bank, NAB and Westpac – shows that the interest rates offered are often less than half of this capped rate. For example, NAB offers a variable rate of 2.8% per year for secured loans based on eligibility and 3.95% per year for unsecured loans up to $250,000.

Commonwealth Bank deserves to be on your shortlist with its zero percent interest offer on its Business Boost loan, but check all the fees and penalties that come with the contract. It is also only available until June.

Secure versus insecure

Rates vary depending on the amount you want to borrow and the collateral you can use against the loan. It’s best to check with your lender, but typically the percentage difference can be as much as 1% or more depending on the asset.

Suncorp Bank, for example, offers a low floating rate of 2.39% per year for secured loans, rising to 4.69% per year if unsecured. For unsecured loans, the maximum amount most lenders would approve is $250,000.

Reimbursement holidays

One of the biggest advantages of this loan is the ability to take a repayment holiday. Some banks offer six months while others may offer up to a year or two, depending on individual circumstances.

Under the government mandate, two years is the maximum period allowed to defer repayments. As all loans under this program are for a maximum of 10 years, deferring payments for a few years means that you will have eight years to pay the full amount (the loan, with its lower interest rate more favorable, cannot be extended beyond this amount).

The consequence of temporarily stopping your repayments includes additional interest on top of your pre-negotiated interest. (For example, it could be an additional 0.3% interest if you request a repayment holiday).

Fees and Waivers

Another reason small business owners should look into this loan before the June deadline is for lower service fees. You still need to cover any government related fees or appraisal fees if the loan is secured by commercial property, but there are usually no upfront or ongoing fees.
Some lenders charge a set-up fee while others, if you want a withdrawal facility, charge a fixed amount (usually a few hundred dollars) for every $5,000 you withdraw from the loan.

Grant Cairns, executive managing director of business loans for Commonwealth Bank, says it is offering financial assistance, on a case-by-case basis, to businesses affected by the floods. This includes restructuring loans and waiving merchant fees.

“We understand that every business faces different challenges and opportunities right now and encourage our customers to talk to us about how we can help them meet their business needs,” he said.

Get stories like this in our newsletters.

Comments are closed.