COVID-19 Insights | Defer, restructure or borrow?

Manage.
Mitigate.
Move Forward.

By Phil Ringuet

Over the last two weeks we have received an incredible amount of calls from both our clients and the broader Vincents community.  Whilst in these uncertain times the support, understanding and co-operation has been incredible.

Our mission at Vincents is to work with our stakeholders to deliver comprehensive insights into complex situations and enable them to take control of decisions and get the best possible results.

To that point please see below a comprehensive list of support mechanisms for those who have existing liabilities and want to know their options.

Borrowing

Repayment pauses – Banks are offering the option to pause/ defer your repayments for 3 to 6 months. This provides an opportunity to manage what for some households will be their largest monthly expenses. Most initially will offer a 6 month pause with a 3 month check in.

Responsible lending guidelines have also been relaxed, however more to come on this in the future.

Repayment Pauses – Like individual borrowers, banks will be providing repayment pauses on the following for up to 6 months:

Small businesses (debt <$3m) experiencing cash flow difficulties as a direct result from COVID- 19 can defer their payment on business loans and equipment finance for up to 6 months. Options are also available for business credit cards.

For large businesses and corporates, support is very much available – however you will need to be prepared to discuss the impact and required resolutions in detail (so prepare well).

Banks have significantly reduced interest rates on business lending products ranging between 100bps and 500bps.

There is also a waiver of particular fees associated with redraw, merchant terminals.

Yes and No. Whilst most banks are quite open to assisting, others will explicitly state you must be impacted by the knock on effects of COVID-19.

At its easiest nothing is required but it should be noted if you were already in a position of hardship prior to COVID-19 this may be a hindrance.

For business clients you should be prepared in any case to be able to articulate the impact COVID-19 is having on your business along with how the assistance will see you through and the outlook on your business and/or industry.

Forecasting is a great tool to utilise, so if you have an business advisor or accountant we encourage you to leverage their expertise for this.

The catch is called “Interest Capitalisation”. This essentially means your interest is still accrued, will be added to your loan amount and will need to be caught up.  An example is provided below:

If you have a $400,000 home loan at an interest rate of 3 per cent, you would be paying $1,000 a month in interest.

If you pause your home loan repayments for six months, the interest amount is added to your outstanding balance.

So in six months’ time, you will be looking at paying off a $406,000 loan.

In its simplest form you will need to keep up your repayments post deferral and your loan balance will be larger and equity diminished.

I have placed a comprehensive list below of contact numbers and websites. Each bank will have a separate process which can be accessed via a dedicated COVID-19 page, internet banking, telephone banking (expect delays) or your relationship manager.

Short Answer, YES. In times of extreme volatility there is always opportunity. Whether that opportunity is to refinance your mortgage, saving you thousands and pocketing some cash, acquiring cheap stock or capitalising on below market valuations – this is your opportunity.

Remember post GFC hindsight, “I could have, should have about that property or those equities as I knew it was under-priced”

Refinancing & restructuring

For those who would like to explore this opportunity we are here to help. We are able to provide rates from 2.19% which can save you thousands along with ensuring structurally you have the best product to suit your needs and requirements. In some cases we can also provide you with $4,000 cashback for the hassle.

For businesses this also applies, banks will fight hard for great businesses. Now is an ideal time to review your debt facilities and determine their appropriateness – in particular if covenants or conditions can be met.  Consider your threats and what opportunities apply.

QLD state government COVID-19 jobs support loan

A $500m low interest loan scheme administered by the QLD state government to help businesses & not-for-profit organisations financially affected by COVID-19.  Applications are open now and will close on the earlier of the 25th of September or upon depletion of the $500m of funding available.

Loans are provided at a fixed interest rate of 2.5% on a 10 year loan term with no repayments in the first year, interest only in years two and three followed by seven years principle and interest.

Example – $250,000 Loan

Year 1 – no repayments, fees or interest  

Year 2 and 3 – interest only – $520 per month 

Year 4 to 10 – principal and interest $3,247 per month

The loan is to assist with carry-on expenses such as employee wages, rent, rates and other related expenditure.

This loan will NOT be provided to acquire assets or restructure existing lending facilities.

The loan will only be provided to business who have been directly impacted by COVID-19.

The maximum loan amount for these loans is 50% of your operation’s annual wage expense, to a maximum of $250,000.

Your annual wage expense is the average of your employee wage expense including superannuation for the 2017-18 and 2018-19 financial years.

Example 

2017-18 Wages + Super $120,000

2018 -19 Wages + Super $160,000

Max Loan available = $140,000

If you work in the business, you may include your own salary or drawings in your annual wage expense.

Loans of up to $100,000 do not require loan security.  For any loan over 100k, a general security agreement (GSA) is required.  This is a charge over business assets.

The scheme will be open for applications until the 25th September 2020. The scheme will close to applications if the $500m is used prior to this date.

o          Business Financial Statements for 2017-18 and 2018-19

o          Personal Taxation Returns for 2017-18 and 2018-19

o          Bank Account Information

o          Australian Tax Office (ATO) Integrated Client Account Statement

o          Aged list of debtors and creditors at time of application

o          Applicant Identification

o          Organisation Constitution or Rules of Association and Certificate of Incorporation (if applying as a non-profit organisation)

o          Trust Deed (if applying as a trust).

If you are operating a single business entity you will only be eligible for a maximum loan of $250,000.

Businesses operating under separate legal entities (ABN’s) may be eligible for separate loans of up to $250,000

  • There is only $500m in available limits therefore this may go quickly (only 2000 businesses if they take 250k)
  • Businesses must have been in a financial position to service the liability in normal circumstances prior to impacts of COVID – 19
  • Annual reviews of your loan may be required
  • Audits may be undertaken on successful applicants

If you are interested in finding our more or applying for a COVID -19 Jobs Support Loan please reach out and we will guide you through your options.

Alternatively, see the link below:

http://www.qrida.qld.gov.au/current-programs/covid-19-business-support/queensland-covid19-jobs-support-scheme

Federally backed bank loan scheme

Whilst this scheme has been presented as an option, no clear details are available at this point apart from mention that the loan will only be afforded for working capital purposes. We will update you when more information comes to hand.

What next?

Pick up the phone or email and speak to your advisor or contact Vincents Lending Solutions on the below details to help you prepare your application to ensure your business gets the help available.

All levels of governments, the reserve bank, the ATO and banking systems have placed a number of outstanding initiatives in place to help get you through what is a challenging time.

 Our best advice to you in these circumstances is;

  • Speak to your advisor, broker, accountant or banker.
  • Act early and take advantage of relief packages where required
  • Understand your position today, tomorrow and for the next 3 to 6 months.
  • Determine what levers are available to you and when you should pull them.
  • Keep calm.

Want to know more?

At Vincents Lending Solutions our experts simplify the lending landscape, bringing considered solutions directly to you from over 70+ financial institutions.  If you would like to arrange a meeting over the phone or via Skype we are open for business and available to discuss all lending related matters.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

Useful links

Banks Hardship Departmentshttps://www.ausbanking.org.au/campaigns/financial-hardship/
Govt assistance Householdhttps://treasury.gov.au/coronavirus/households
Govt assistance Business Linkhttps://treasury.gov.au/coronavirus/businesses
ATO https://www.ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/COVID-19/?=redirected_COVID
 
Adelaide Bankhttps://www.adelaidebank.com.au/coronavirus-assistance/
ANZ – Home Loanhttps://www.anz.com.au/personal/home-loans/your-loan/covid-19/
ANZ – Businesshttps://www.anz.com.au/promo/covid-19/
Bank Australiahttps://www.bankaust.com.au/support/alerts/
Bendigo – Home Loanhttps://www.bendigobank.com.au/help/coronavirus-assistance-package/
BOQNo Formal Packagehttps://www.boq.com.au/help-and-support/assistance
CBA – Home Loanhttps://www.commbank.com.au/latest/support-for-home-loan-customers.html
CBA – Businesshttps://www.commbank.com.au/latest/coronavirus.html?ei=anch_CTA
HSBChttps://www.hsbc.com.au/help/covid-19-update
Macquariehttps://www.macquarie.com/au/personal/coronavirus
NAB – Home Loanhttps://www.nab.com.au/personal/customer-support/covid19-help/home-owners-support
NAB – Businesshttps://www.nab.com.au/personal/customer-support/covid19-help/business-support
Suncorp – No Formal Packagehttps://www.suncorp.com.au/banking/covid19-information.html
Westpac – Home Loanhttps://www.westpac.com.au/help/disaster-relief/coronavirus/?pid=iwg:sc:COVID-19_2003:tile:car_per
Westpac – Businesshttps://www.westpac.com.au/business-banking/small-business-relief/.html
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