Small businesses sink their teeth into government loan scheme to build cash piles or online stores

Whether building a cash buffer or reinventing their operations, small businesses are using a government loan scheme to help Australia’s economy recover from Covid-19.

Small businesses are tapping into the federal government’s SME recovery scheme to build cash piles to combat stop/start lockdowns or join the mass migration to online shopping, according to Australia’s biggest bank.

Commonwealth Bank has lent almost $2bn to small and medium-sized enterprises (SMEs) as part of the scheme, which allows businesses to borrow up to $5m over a term of up to 10 years, with the government guaranteeing 80 per cent of the loan.

The government SME loan scheme has made it easier for smaller businesses to access cash. SMEs no longer need to have accessed JobKeeper during the March quarter or been flood affected to qualify, fast-tracking loan approvals.

The scheme has also prompted the big banks to change the way they lend to SMEs, with ANZ gearing up for lending blitz to smaller businesses to help fire up Australia’s economy when Covid-19 restrictions ease.

CBA executive manager of business lending Clare Morgan said while there were many reasons businesses had accessed the scheme, some had used it to shift towards online, reinventing their operations, or build financial buffers.

“What we see there is that some customers will take out the loan, and they will then have relatively low utilisation levels. They won’t draw it right down, they’ll just draw down a small part of the loan,” Ms Morgan said.

“What those customers tell us when we check in with them is, ‘that’s sort of my reserve capital and if the economy does in fact rebound as quickly as some of the economists are saying, then I can just draw down and I’ll be ready to go’.

“Then other customers are saying, probably a little bit more cautiously, ‘the industry outlook for my sector is not so bright, I’m just going to sit on this and know that it’s there, it’s just a bit of a liquidity buffer’.”

Ms Morgan said it was difficult to determine how much of the $2bn CBA had lent to small businesses had been drawn down, given levels change frequently. Regardless, the aim was to ensure smaller businesses had the confidence to invest in their operations and support the economy.

“Even if you haven’t utilised it, knowing that it’s there can give you confidence,” Ms Morgan said.

Other businesses have used the scheme to secure their survival, such as Vic’s Quality Meat, which supplies restaurants and stores across Sydney and Melbourne. When lockdowns hit, it was faced with 250,000kg of meat in stock at times, which would have spoiled had it not been able to create its first “online butcher”.

Its shift into e-commerce allowed “regular punters” to buy restaurant quality meat, allowing the company to keep its stock moving. The business has now made more than 60,000 deliveries and covers 92 per cent of Australia’s postcodes.

“While we hadn’t planned to do this during a pandemic, when the right opportunity came up in Melbourne we were fortunate to be able to access the loan to move quickly,” Vic’s Meat owner Anthony Puharich said.

“We’re a family owned and run business and we couldn’t expand and grow our operations without the support of the bank.

“It’s been critical in allowing us to establish and fit out our new flagship store to the highest quality standard, and will also see us employ 30 more staff than we had before the pandemic when we open it in September this year.”

But more businesses shifting to e-commerce has had unintended consequences. Who Gives A Crap chief executive and co-founder Simon Griffiths said online advertising rates had soared, eating into the company’s profits and halving the amount of donations its makes towards sanitation projects in developing countries.

“All of a sudden every business is an online retailer. There’s more demand out there for ads, which pushes the price of ads up. And so the donation was about half of one year prior,” Mr Griffiths said after announcing the company’s first capital raising of $41.5m.

But the loan scheme has generated much-needed confidence – even in states where businesses haven’t been forced into lengthy shutdowns, like Queensland.

Dave Keys, managing director at Brisbane-based software analytics firm, Key Data, said lockdowns in other states meant several of its contracts with bigger companies were “put on hold”.

“The business made the strategic decision to access the loan scheme as additional cash flow and to keep the team employed and together,” Mr Keys said.

“This has allowed us to diversify and we’re now in a strong position for growth and expanding our business.”

For businesses taking advantage of the scheme, loan approval must be received by December 31 and loans must be drawn down within 90 days.

Originally published as Small businesses sink their teeth into government loan scheme to build cash piles or online stores