How to secure your finances during COVID-19
The Government, the Reserve Bank of Australia (RBA), and the Australian Prudential Regulation Authority (APRA) have implemented credit measures to try and limit the economic damage by the COVID-19 pandemic to individuals and businesses.
Legal Home Loans have summarised what the consolidated measures mean for yourself, your family, and your practice.
FOR NEW BUSINESS CREDIT:
- New applications for commercial and working capital facilities are being accepted as normal and even fast-tracked to support businesses immediately;
- Banks are now accepting digital Verification of Identity and self-assessment;
- The Government is supporting the supply of credit by providing a guarantee on 50% of loan balances for new loans to SMEs up to $40bn;
- RBA has made a $90 billion funding facility available to banks and lenders at 0.25% to fund new loans for SMEs;
- The Government has increased the Instant Asset Write-Off (IAWO) threshold from $30,000 to $150,000 for all SME businesses and sole traders.
For new credit applications, the Government has implemented the Coronavirus SME Guarantee Scheme, under which it will guarantee 50% of new short-term unsecured loans to SMEs. The Government will guarantee up to $40 billion of new lending to help businesses meet cash flow needs. The loans will not require repayment for the first six months and will be for a maximum of $250,000 over three years.
There is also a temporary exemption from responsible lending requirements for lenders providing credit to existing small business customers, meaning practice owners and sole practitioners can access credit quickly.
Protecting small businesses is a priority for the RBA, as they have implemented a funding facility of at least $90 billion to banks and lenders at a fixed rate of 0.25%. Incentives have been put in place for lenders to draw from this facility specifically for new loans to SMEs. This measure combined with the Government’s Guarantee Scheme means small businesses and sole traders can receive credit efficiently at low-cost.
The IAWO has been temporarily increased from $30,000 to $150,000 until 30 June 2020 for new or second-hand assets. This aims to provide cash flow benefits for sole traders as they will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.
FOR NEW HOME LOANS:
- New applications for residential loans are still being accepted as most banks are now accepting digital Verification of Identity;
- The interest rate is being held at a historic low of 0.25%, thereby increasing your borrowing capacity;
- Some banks are experiencing processing delays, however our team are working closely with lenders to expedite applications wherever possible.
For new home loans, the interest rate cut to 0.25% will have an immediate positive impact on your borrowing capacity. Banks have responded to social-distancing measures by allowing for digital Verification of Identity in place of traditional in-person verification, meaning new applications can be processed from the safety of your home.
Due to reduced capacity as a result of COVID-19 working arrangements, some banks are experiencing delays in processing applications, however our team are working closely with all lenders to ensure our customers’ applications are expedited as much as possible. There are also some tightening of credit policies and you may be requested for additional supporting documents depending on your situation. Each application will vary, so it is best to discuss your needs with one of our brokers to understand your standing.
FOR EXISTING CUSTOMERS:
UPDATE as of 8th July 2020: The APRA have announced that Australian banks will continue to support customers by extending loan deferral options, assessing affected customers on a case by case basis. Customers that are unable to service their loan by the current September expiry date may have an extension by up 4 months ending no later than 31 March 2021.
Assistance options are as follows:
- Mortgage repayments may be deferred;
- Principal and interest loan repayments may be suspended for up to six months for small-business customers;
- Temporary increases in overdraft facilities with reduced interest rates have been made more readily available;
- Interest rates have been reduced on home loans and business loans.
For practice owners, barristers, and sole traders, repayment holidays of up to six months will help provide a security net if needed during this crisis, with no reflection on credit history. Some lenders, such as Commonwealth Bank, will auto-enrol some of their small-business customers into loan deferral arrangements for up to six months as of 1st April. Other lenders will require application for such arrangements.
A temporary increase in overdraft facilities with reduced rates is also available to provide cash flow relief for businesses. NAB, for instance, is cutting 200bps from interest rates on new business loans and all overdrafts as of 30th March.
For existing home owners, all four major banks in addition to non-major lenders have outlined that they will be providing relief to households with mortgage repayment deferment and interest rate reductions. For those secure in maintaining their mortgage, refinancing now to take advantage of the lowered interest rate can result in savings.
Despite working from home arrangements, business operations continue as normal for Legal Home Loans, banks and lenders. Legal Home Loans are here to help you navigate and coordinate these facilities during this period of uncertainty and economic risk.
Speak to us to coordinate working capital, overdraft facilities, new loans, or to restructure existing finances and mortgages. Organisation of your personal and business finances now could be crucial to your financial standing at the end of the COVID-19 storm.
Contact us today for support.