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Don’t Meet the Requirements for the Government SME Loan Guarantee Scheme? You Still Have Options

As lenders start taking applications under the much-talked-about Government SME Loan Guarantee Scheme, we are beginning to see just how high the demand is. Banks have been inundated with thousands of applications, pushing turnaround times far beyond their usual lengths. With non-bank lenders recently receiving approval to join the Scheme, more options are opening for SMEs looking for sure up their working capital position during the current, unprecedented pandemic-impacted business environment.

While the Government SME Loan Guarantee Scheme goes a long way to support lenders’ appetites to provide funding to businesses who are suffering temporarily, not every SME will qualify. Loans issued under the Scheme are repayment-free for six months, with eligible borrowers still needing to demonstrate their ability to make the payments after this holiday. If your business has tax debts or wasn’t profitable enough before COVID-19, you might not qualify for a loan from your lender, even with the Scheme in place. If that’s the case, it’s important to realise you still have options. There are many financing strategies you can look at to solidify your cash flow and working capital position, ensuring your business emerges from the COVID-19 restrictions intact.

Debt Consolidation and Refinancing

Is your business already carrying multiple debts? If that’s the case, debt consolidation or refinancing can potentially make a difference to your ability to service repayments. Start by assessing your total debt profile – what loans are you currently paying principal and interest on? Do you have credit card debt, asset financing or even personal loans eating away at your cash flow? Asking yourself these questions allows you to build a clear picture of your debt commitments, including the interest rates you’re paying on each product.

Refinancing existing debts or consolidating your loans may often offer you a better interest rate and a longer repayment period. By reducing the interest rate you’re charged and extending the repayment period, your new monthly repayment will likely be lower than what you were paying previously. While debt consolidation does not reduce your debt, it can make repayments simpler and easier to manage, lessening the pressure on your business cash flow.

Do you have Equity in Your Properties?

If you’re a business owner and you have your own home, investment or commercial property, then there could be an opportunity to unlock some cash. Depending on the level of equity you hold and current property valuations, there are ways of freeing up funds to inject into your business. For example, if you’re willing to leverage the equity in your own home to support your business, you may be able to access funds from under 3%.

While this may be the cheapest way to raise funds, it also comes with a caveat. Depending on your debt levels, you may be putting your home at risk. Consider carefully which properties in your portfolio you would be willing to draw funds against to prop up your business. Have a plan – if things go sour, you’ll be gambling more than just your company.

Does Your Business Own any Plant or Equipment?

If your business has unencumbered (debt-free) plant, equipment, machinery or vehicles, you could consider a sale and lease/hire-back arrangement. Essentially, a sale and hire-back arrangement involves your business selling the plant or equipment to a lender, who at the same time, agrees to lease it back to you at an agreed rate. You’ll remain in possession of the asset for the term of the lease, and instead of owning in, you’ll pay a monthly rental fee.

“Ensure you’re using all the assets you own to generate cash for your business.”

The proceeds of the sale can be injected back into your business for use as working capital, without losing access to necessary equipment or vehicles. These deals can be turned around in just three to four days, so you know where you stand without the lengthy application processing times typical of the Government SME Loan Guarantee Scheme. It’s a great way to ensure you’re using all the assets you own to generate cash for your business.

Switch your Principal and Interest Loans to Interest Only

If your current repayments include both a principal and interest component, it’s worth looking at the possibility of switching to an interest-only loan, at least for a short period. By not repaying the principal component of your loan, you’ll be reducing the size of your repayments without going backwards (you’re still servicing the interest). In times like this, most lenders will be open to the idea, so have a chat with them to work out a solution that works for you.

Watch the full video here with Anne Kollegger, Director of Ark Financial:

Capital Plus Finance supports small businesses. We have your back. As an experienced business finance broker, our team will do everything we can to help you through tough times. If you need assistance understanding how your business can take advantage of the Government SME Loan Guarantee Scheme or alternative financing arrangements, please give me a call.