Why are small business loans stopping in Australia? | Newcastle Herald
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With the Small Business Loan Recovery Program closes at the end of June, Australian small businesses will have fewer opportunities to fund themselves at a time when many factors are weighing on them.
The halt to the SME Loan Recovery Program, aimed at mitigating the impact of COVID-19 by providing government-backed loans to small businesses, comes around the same time local and global instability is making headlines. one of the newspapers.
From global and domestic inflation impacting monetary policy in nearly every country, tech companies bleeding into lower valuations and startups halting growth or even laying off staff, to the strict COVID- 19 in China leading to more supply chain disruptions, the war in Ukraine, the Australian election and its aftermath, there is a lot of uncertainty in the air. And when there is uncertainty, growth is hindered.
Will the end of the SME Loan Recovery Scheme weigh heavily on Australian SMEs?
The shutdown of the SME loan collection program isn’t a big deal in itself, says Alon Rajic, chief executive of Finofin, which operates the SME finance comparison site. Small Business Loans Australia.
“The vast majority of applications [for the Loan Recovery Scheme] are denied anyway,” he said. “Based on a sample of several thousand business owners and sole traders who applied through Small Business Loans Australia partners, only a handful of businesses were found to be eligible.
Mr Rajic, whose company also runs guides for small businesses in the United States, said the SME loan collection program was very different from the US Paycheck Protection Program Loans.
“For a PPP loan, you just had to make sure your application got through the door before the PPP money ran out, plain and simple,” he said. “When your application was approved – and it was only a matter of when rather than whether – you would become eligible for an instant government guaranteed loan capped at 1.75% per annum with an interest rate .
“This is a very different type of package to the Australian SME Loan Recovery Scheme, which is capped at 7.5% interest per annum. The amount of the loan turns into more of a grant to small businesses than in a small business loan, really.
“The PPP had an incredible impact on the small business economy in the United States during the COVID crisis, while the Small Business Loan Recovery Program did not and still does not. When it will stop soon, few people will notice.”
SME growth stagnates in May
While Mr Rajic doesn’t think the stimulus package has made much of a difference in terms of access to business loans, he thinks the other factors at play such as inflation, elections and global tensions are creating uncertainty for the vulnerable small business sector and fueling reluctance to take out loans to invest in their business.
When small businesses are afraid to borrow money, it’s a bad signal for future growth, he said.
“May is traditionally one of the strongest months of the year for small business funding – many businesses restock during this period leading up to the end of the financial year.
“This year is also the first proper post-COVID year for Australian small businesses, but there were still fewer loan applications and fewer small business loan approvals than expected, adjusted for seasonality.”
Mr Rajic said Australian small businesses appeared to be “sitting on the fence”, preferring to preserve cash and avoid debt as much as possible.
“It’s not a bad thing to do, given the potentially turbulent times ahead, but it does bode a bit ill for the broader economy,” he said.
“This is in line with the most recent statement by the RBA monetary meeting for May which warned of a halt in growth in the coming months due to inflationary pressures and the other global factors discussed earlier.”
Finofin is a content specialist company with over a decade of experience producing successful comparison websites globally, including specialist business loan site Small Business Loans Australia.
This is branded content for Finofin.