Business support after JobKeeper: Could ‘HECS-like’ loans be the solution?

By Katherine O'Chee ·

Two Australian professors have said HECS-style business loans could be the answer to helping companies move away from a reliance on the government’s JobKeeper scheme.  

HECS or the Higher Education Contribution Scheme, now HECS-HELP, is a student loan that gives Australians the option to enrol in domestic universities without having to pay for tuition upfront. Instead, they would repay those fees once their income surpasses a set threshold. 

According to HECS founder and Australian National University (ANU) Professor Bruce Chapman, and University of New South Wales (UNSW) Professor John Piggott, a similar model could be applied to business loans. 

In technical terms, these would be known as revenue-contingent loans (RCL). With RCLs, loan repayments would only be made after a business starts earning above a certain revenue level. 

Chapman and Piggott told the Sydney Morning Herald their model would help businesses survive financially in the long run without placing further pressure on the government’s budget. 

“For many firms, with a buffer of this type, the withdrawal of JobKeeper could be very harsh, and might mean in the aggregate increased job shedding, further demand reductions, and heightened uncertainty at a time when insecurity is already at a historic high,” they said. 

Their proposal comes as Prime Minister Scott Morrison called for businesses not to become too attached to JobKeeper. To date, about 768,000 businesses have signed up to the scheme, with 40% of them being sole traders. 

Under Jobkeeper, businesses can apply for subsidies of up to $1,500 per employee, to be paid out every fortnight. 

But Chapman and Piggott’s model would mean dividing that payment up into $500 worth of government relief money and $1,000 worth of loan finance. 

Why would this business loan model work? 

Chapman said their model is more sustainable and also comes with less risks than a typical business loan. 

“Governments can provide very large sums of money in the form of grants or tax relief, but with enormous future costs to the state of the budget,” Chapman said. 

“Or governments can extend normal concessional loans now in use, which have all the repayment risks and uncertainties associated with conventional borrowing.

“Instead, the insurance benefits of contingent debt have become very clear from our 30-year experience with HECS.” 

In other words, since loan repayments would be based on revenue earnings, the proposed system should minimise the chances of a loan default. This would help protect lenders and give businesses more time to pick themselves back up. 

Other loan repayment relief options

A host of Aussie lenders have also stepped in to aid small businesses who can’t afford their loan repayments at the moment. 

They’ve announced relief packages for their business customers to help them stay afloat amid coronavirus, offering measures such as loan repayment deferrals.

More details can be found in our guide to Australia's coronavirus financial support for small businesses

As for businesses who have borrowed up to $250,000 under the SME Loan Guarantee Scheme, they’ll also receive an initial six-month repayment holiday, with interest capitalised. 

Just beware that ‘interest capitalisation’ means you’ll continue to accrue interest on your loan throughout the holiday period, so you’ll end up having to pay more over the life of your loan. 

For more support options, browse our article on everything you need to know about coronavirus and your finances

Or see which other money moves can help your business survive coronavirus.

Business loans 2020 - last updated January 16, 2021

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Katherine O'Chee
Money writer

Katherine O’Chee is Mozo’s international money transfer and forex expert and business banking writer. She keeps Mozo’s readers on top of the latest news and writes in-depth features to inform and help Australians make smarter financial decisions. Her work has been published in major media outlets including Sydney Morning Herald, SBS News and Bangkok Post. She has a Bachelor of Arts (Media and Communications) from the University of Sydney. She is also ASIC RG146 (Tier 2) certified for general advice.