Small business support in 2021? Experts propose HECS-style loans after JobKeeper

Small business owner opening shop

Small Business Ombudsman Kate Carnell has renewed calls for the federal government to provide HECS-style loans to businesses to help them stay afloat once JobKeeper ends in March.

These ultra-low or zero-interest business loans would be government-funded and help boost cashflow, and similarly to the student HECS-HELP loan, would only be repaid once the business hits a certain agreed level of revenue.

Carnell says that “somewhere between 25-30% of businesses are still really struggling.”

“[That may be] because of the industry that they’re in, border closures, shutdowns, COVID requirements - a whole range of reasons why they’re not recovering at the same sort of rate as other businesses,” she says. 

“There are some [businesses] that are tracking in the right direction and they will be alright, but there needs to be an option for those that aren’t.” 

Stuck ‘between a rock and a hard place’

Tourism businesses in the south coast of NSW were looking forward to a bustling Christmas period over January. They were fully booked in one moment and then things changed.

Sunset at Culburra Beach
Culburra Beach, South Coast of NSW

As Victoria closed its borders to NSW on New Year’s Day, people got in their cars and left within hours. And those businesses went from being booked out to having nobody. 

Carnell says travel agents represent one industry which finds itself “between a rock and a hard place.” 

“International borders aren’t open and as for the work they’d been doing in terms of Australian tourism, [state] borders keep closing so people keep having to cancel.” 

She says independent cinemas are also in “all sorts of trouble” not only due to COVID restrictions, but also because film companies in America aren’t releasing any new content while US cinemas still remain closed. 

Why HECS-style loans would work in pandemic times 

Carnell says the proposed revenue-contingent loan system would be flexible enough to respond to dips in business cashflow as pandemic circumstances change. 

“It’s based on revenue, which at the moment is a bit of a rollercoaster for lots of businesses,” she says.

“[It works because] if you end up in a shutdown and your revenue decreases or stops, then the payments also stop. Just like HECs.” 

And she isn’t the first to back this scheme either. Earlier last year, Bruce Chapman and fellow professor John Piggott suggested a similar model as a way to help companies transition out of JobKeeper. 

Carnell says the proposal for HECS-style loans will be presented to the government in a pre-budget submission and also suggested separately, “because we think it’s got to be in place at the end of March when JobKeeper finishes and it’s planned to at this stage.” 

“There’s got to be something else, because [businesses] are not yet in the position to manage the swings and roundabouts of COVID,” she says. 

To be eligible, businesses would have to pass a viability assessment conducted by an accredited advisor to ensure they’re in the position to manage further debt. 

Carnell argues that this would be more accessible to struggling businesses than the current government-backed SME Loan Guarantee Scheme, which has been extended until June this year. 

“The problem with more traditional bank loans, even the SME guarantee loans, is that you have to go through the whole bank loan system. And the banks at this stage are quite negative about lending to businesses that have been affected by COVID,” she says. 

“The regulatory requirements for them to ensure lending is done in a sustainable way is [to give loans] only to people whom they can be absolutely sure can pay it back, which means they’re saying no.” 

In fact, up until the end of last July, only $1.5 billion of the planned $40 billion was handed out to small businesses. 

Looking for a list of other support measures for small businesses and individuals? Visit our guide on coronavirus and your finances to see what’s available.