Loan Repayment Deferral Extension – what you need to know

The recent announcement by the banks that there will be an option to extend loan repayment referrals has offered a welcome reprieve for many businesses.

Businesses within the City of Melton hard hit by COVID-19 restrictions, were able to apply for the loan repayment deferral scheme to pause loan repayments.

With that scheme set to close in September, local businesses utilising the current loan payment deferral period will be contacted by their lender to reassess their financial position and capacity to make loan repayments.  Some key points to be aware of are:

1. Businesses who can restart paying their loans will be required to do so at the end of their six-month deferral period.

2. Businesses with reduced incomes and ongoing financial difficulty due to COVID-19 will also be expected to return to repayments in some form, either by restructuring or making variations to their loan arrangement.

3. If either of the above arrangements are not in place at the end of a six month deferral, businesses will be eligible for an extension of their deferral for up to four months.

4. Businesses who access the new extension will be expected to work with their bank, during this extra deferral period, to find an on-going solution.

So in summary – The deferral extension can be up to four months, it is not automatically extended, and greater assessment and verification checks are in place than the initial deferral process.

Lenders will only provide extensions to businesses it deems are genuinely in need of the extra time.

Common options that lenders are likely to discuss with those on the current loan payment deferrals include:

• Extending the length of the loan

• Converting to interest only payments for a period of time

• Consolidating debt

• A combination of these and other measures

If you get the extension and your business continues to be severely financially impacted and you are unable to make repayments, ask your lender about their hardship process to determine the best long-term solution for your individual circumstances.

The banks have deployed over 5000 extra staff to contact and work with businesses over coming months. So if you have your next move already organised it would pay to get in early and resolve it with your lender if you can.

The effect on your credit rating

Importantly, businesses who recommence repayments on their existing loan or enter into a new repayment arrangement and honour the new repayments will not have their credit reports adversely affected. The same applies if you are granted an extended deferral period approved by your bank. The key is to work in partnership with your bank and have open communication about your circumstances.

Act NOW!

So if finance is keeping you up at night, talk to your accountant to discuss if either a loan restructure or a resumption of full repayments is your best option, before the bank contacts you.

For more information on phase two support head to Australia Banking.

Emergency, crisis and legal support

There are free services to help you with food, housing and bills. See urgent help with money.

You can access free legal advice and support if you need it. If you are feeling overwhelmed by your financial situation, visit this link NOW.

Peter Forbes
Business & Industry Development Officer