Australian businesses have gone through a lot in the past year. After the big drop in the housing market, and suffering slowed growth due to the US-China trade war, the country was rocked by historic bushfires early in the summer. This was followed immediately by ongoing historic floods. Now, the coronavirus pandemic is throwing travel, consumer spending and global supply chains into chaos, and promising to continue to do so for months.
For many businesses, it’s simply too much for too long. Financing tools ranging from traditional business loans to cash flow management can help businesses offset setbacks for a while, however they aren’t designed to absorb one blow after another for months on end.
Recognising this, the government and the Reserve Bank of Australia (RBA) are taking action to help businesses recover, and sustain themselves through these unprecedented circumstances. These range from loan programs, to interest rate cuts, to tax relief measures. Furthermore, experts expect the federal government to ramp up infrastructure spending as a way to stimulate the economy.
RBA lowers interest rates
The Reserve Bank of Australia has lowered interest rates four times since last June, with the latest cut to 0.5 per cent announced at the beginning of the month. This measure has resulted in the lowest interest rate in the country’s history. Despite this, Deloitte’s latest CFO Sentiment Survey found that half of CFOs expect further rate cuts throughout the year.
The purpose of rate cuts is to support businesses by encouraging banks to lend more, making it easier for businesses and consumers to borrow additional funds at more affordable rates, and to refinance existing debt. This supports businesses directly and indirectly, by giving them and their consumers easier access to liquidity.
Recovery grants and loans
The federal and state governments are offering a variety of grants and loans to help businesses recover from the impacts of bushfires in affected areas. For small businesses, governments are offering grants of up to $50,000, and concessional loans of up to $500,000. While grants are reserved for businesses that suffered direct damage, the loans are also available to those dealing with indirect effects of the fires.
Meanwhile, governments in Asia, Europe, and North America have begun to offer emergency loans to businesses affected by the economic impacts of the coronavirus in their countries. As the pandemic begins to spread into Australia, businesses can expect similar support from both the federal and their respective state governments. The private sector has already responded much more quickly, of course. Many Australian banks are already providing assistance in the form of payment deferrals, fee waivers, and loan restructuring. The Australian Banking Association stressed in February that businesses suffering from circumstances beyond their control should contact their banks for support rather than attempting to “tough it out”.
Tax and fee relief measures
Late in January, the ATO announced that people and businesses in areas affected by bushfires would receive an automatic extension, giving them until May 31 to file business activity and income tax returns. Now, state governments are stepping in to provide tax relief to businesses impacted by the coronavirus.
The Queensland government has announced that businesses affected by the coronavirus outbreak can submit an online application to defer their payroll tax returns until 31 July. This follows a $27.5 million aid package released in February, which will serve to promote tourism, waive various business fees, and defer tourism lease payments. Other states are expected to follow suit, particularly those most directly affected by the decline in tourism that the outbreak has already caused, such as New South Wales. NSW has also become the site of Australia’s first community transmission of the virus, which will likely further spur on government action.
Cash flow control is key
These relief measures are designed to help businesses to recover, and to deal with the larger impacts of a slumping economy. To avoid short term disruptions to their operations, however, businesses need cash flow management support. Alternative financing tools, such as invoice finance and supply chain finance, are key when it comes to making sure that businesses have the flexibility to deal with sudden cash flow interruptions. These allow businesses to quickly come up with additional working capital, or to extend their payment terms to preserve existing working capital. This allows them to seamlessly adjust to abrupt cash flow changes without suffering any interruptions to their operations.
With such a rough start to the year, businesses are facing a whole range of unprecedented challenges. Fortunately, the government and their financial institutions are closing ranks with them to protect their interests, and to ensure their resilience no matter what comes.