COVID-19 relief packages for mortgage holders and business owners

Here we outline what these relief packages are and key considerations. The focus here is on bank and lender support for those in hardship – as distinct from the government stimulus and support packages or credit assessed applications for new finance or for refinances and restructures that require the normal full credit assessment and analysis.

Support for mortgage holders

Essentially, if people are struggling with their home loan repayments help is available, with banks and lenders across Australia announcing a range of relief and support measures for both owner-occupier and investor mortgage holders.

It is important to note that those seeking relief will need to demonstrate financial hardship and a change in their ability to make repayments, such as lower income streams, or in fact a loss of a job, or for a property investor a tenant being unable to pay or having left.

The relief packages include:

1. Shifting from principal and interest to interest only payments;

2. Lowering repayments;

3. Deferring repayments three months then a review with the option up to six months; and

4. Obtaining relief on credit cards repayments – limited providers are offering this.

Support for business owners

Cash flow is king right now, with bank and government initiatives focused on measures offering cash flow relief and support for businesses and their employees. Essentially putting them into “hibernation” – so when we come out of this they are able to “survive”, “revive” and then ”thrive”!

Again, the measures are focused on businesses in hardship, and businesses will need to demonstrate how they have been impacted.

The relief packages include

1. Up to six months repayment holidays – with banks recently extending the eligibility criteria to loans up to $10 million (from $3 million). This will capture approximately 98 per cent of all businesses with loans secured from an Australian bank. The ABA said businesses with total loans of more than $10 million may also be eligible for the relief “on a case-by-case basis”;

2. Extra funds being set aside for unsecured borrowing up to $250,000 for businesses with turnover less than $50 million with repayment on these borrowings frozen for the first six months. The government has offered to guarantee 50 per cent of the value of these unsecured loans

3. Rate cuts of up to 50 basis points;

4. Overdraft increases are on offer for existing customers;

5. Relief on credit cards repayments;

6. Assisting with restructuring and consolidation of existing loans to lower repayments and free up cash; and

7. Early access to term deposits to give access to cash.

Considerations

1. If a client or business is not in hardship and can continue to make their repayments – then they should continue to do so;

2. If clients have funds in redraw or offset the provider may draw on these before offering deferrals – noting some lenders will take from redraw, but not offset;

3. It’s important to note that while repayments are on hold, interest will accrue, and be amortised over the remaining loan term – meaning repayments will increase once the pause period ends. Businesses can discuss extending their loan term;

4. Additionally, clients need to be aware that interest may compound depending on their bank or lender. Some providers are looking at “rebating” compounded interest – so clients need to ask their provider how they are handling this;

5. At this stage providers not indicating what happens after six months is up, if the situation hasn’t improved;

6. If a small business requires the unsecured funding it is important to understand that these repayments will then be made over 2.5 years – so an analysis of making these repayments needs to be part of the considerations in obtaining these funds;

7. It has been indicated that going into arrears through this time will not impact credit scores;

8. And for those pausing credit card repayments the card generally will not be able to be used through this time; and

9. With asset finance business should consider the shorter terms and the subsequent impact on repayment after the pause period.

Cash is king for business

Here we outline some other considerations for business owners to help free up cash…

1. Construct a rolling 13-week cash flow forecast and undertake some scenario testing;

2. Understand what working capital a business has at its disposal;

3. Consider if businesses can convert any assets to cash;

4. Negotiate with suppliers and extend payments terms where possible;

5. Consider bank finance packages and eligibility to government incentives and ATO provisions;

6. Review of costs and structure – including with landlords;

7. Review of debts and repayment terms; and

8. Share the planning with employees and consider alternatives such as reduced workloads and leave without pay.

Summary

The key message is that there is help available and all lenders have hardship teams ready to help customers navigate and understand their options through these unprecedented times.

Anthony Landahl, managing director, Equilibria Finance