ATO clouds cashflow lending boom for small business

An over-zealous ATO could undo the benefits that better finance options could bring to Australia’s small businesses.

An over-zealous ATO could undo the benefits that better finance options could bring to Australia’s small businesses. Picture: iStock.

These days the banking industry is dominated by royal commission, scandals, court cases, and the demand for extensive corporate restructures.

Beneath this turmoil there is a quiet revolution developing which will transform the funding of small enterprises in Australia.

For generations, small enterprises wanting a bank loan have been required to put up the family house as security. Small business is high-risk and a great many family homes have been lost, which has led to partners (of both sexes) refusing to risk the family home. And in turn, that has reduced small business investment.

For decades small business has pleaded to be able to borrow on their cash flow, but banks have turned their backs.

Now National Australia Bank, after a trial period, is starting to boost a lending service to small enterprises that requires no security or guarantees. The whole loan is based on the strength and the cash flow of the business, rather than bricks and mortar.

To gain such a loan, a small business needs to have at least 12 months record of cash flow. The NAB systems are linked to the Xero accounting products and which produce exactly the material that is required and negotiations are taking place with MYOB and other accounting systems to bring them into NAB’s loan service. But it is also possible to submit verified cash flow figures from outside Xero as well.

Bank shareholders maybe be somewhat alarmed at the risk involved, but the interest rate is set at around 13 to 15 per cent fixed. It’s not cheap, but it’s less than credit cards.

“QuickBiz” loan terms are available for up to three years although normally loans are for a shorter periods. The current maximum for a cash flow loan is $100,000 but it is possible to borrow $150,000 if equipment purchases are involved. Approvals are fast and once the business has performed on an initial borrowing and the bank can see the regularity of cash, it is possible that the loan limits will be increased.

NAB says that these loans are usually the first business loan that these small enterprises have undertaken. I am sure other banks will soon follow, so we are looking at the beginning of a new lending paradigm to cater for the fact that we are heading into a world where small enterprises are going to be much more important in the nation’s business fabric than they were in decades gone by.

The greatest threat to NAB, or any other lender to small business, is that we have an out of control tax office. Never before have we had the judiciary, the Small Business Ombudsman, the Inspector-General of taxation, Fairfax, the ABC, plus The Australian via myself, all saying exactly the same thing: the Australian Tax Office is abusing small business.

It is almost without precedent that a recently retired Federal Court judge, Richard Edmonds SC, would feel the imperative to warn the community that in the ATO “there is a mentality maintained by too many ATO officers for too long that tax payers on the whole are cheats and liars and anything that the ATO does to bring them to account can be justified”.

And then of course the famous remarks of Justice Logan who warned the tax commissioner that he could face charges for offences that carry a ten year jail penalty for the way the ATO was acting in the courts.

And now there is draft legislation to give this out of control ATO even wider powers to bankrupt small enterprises at a whim, because it will have the ability to back date the non tax deductibility of labour costs, which will create instant failure and cut a bankruptcy swath through the small business community.

We have never seen power given to any group in the community to mount an indiscriminate attack on the on the small business section of the economy.

Fortunately it is only draft legislation, but if it were to go ahead it would become too dangerous to lend to small business because the ATO is totally unpredictable. But hopefully, whether it be via the ALP or the Coalition, common sense will prevail and we will have an ATO that is in the business of collecting tax and not pursuing its own social agendas and classifying people as crooks without evidence.

And most important of all, we need a totally independent small business taxation appeal system that does not involve lawyers .

With credit becoming available equity will be attracted to small business and with modern systems we have the makings of a vibrant small business sector that will enhance taxation revenue.