HOW TO SECURE YOUR FINANCES DURING COVID-19
25th March 2020
There has been a lot of fast-moving news in the past couple of weeks as the Government, the Reserve Bank of Australia (RBA), and the Australian Prudential Regulation Authority (APRA) come together 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 credit applications:
New applications for residential, commercial, and working capital facilities are being accepted as normal however most banks are now accepting digital Verification of Identity;
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;
RBA’s cut the cash rate to 0.25%, increasing borrowing capacity as a result;
Valuations have not yet been impacted, and no loan offers have been rescinded;
For business owners and sole traders, 2019 tax returns remain your most important document for income verification, thereby securing your borrowing power.
For existing customers:
Mortgage repayments may be deferred for up to six months;
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 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.
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. Property valuations are yet to be impacted, and banks have not rescinded any offers. This thereby means new mortgage applications are being accepted as normal.
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.
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.
“During times of uncertainty it is imperative that financial structures are in place to protect what is important to us. Now more than ever it is crucial that people review their position”, says Andrew Johnson, Director of Legal Home Loans.
Despite working from home arrangements, business operations continue as normal for Legal Home Loans, banks and lenders. There is a large effort being put forward sector-wide, with combined efforts from the Government, the RBA, APRA, and the Australian Banking Association, to soften the blow for businesses and households alike. 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.