In this article we provide a brief summary of the ABA's proposed relief measures, how to apply for them, and some important practical considerations to keep in mind when applying.
What are the Small Business Relief measures?
The ABA, the representative body of a number of major banks, has agreed to implement small business relief measures to assist small businesses and commercial landlords during the COVID-19 pandemic.
The measures involve allowing eligible small businesses and commercial landlords to defer payment of principal and interest payments to member banks under all term loans and retail loans for a period of 6 months. You can check if your bank is a member of the ABA here.
Are you eligible?
To be eligible, you must satisfy the following conditions:
- you must be a business or commercial landlord with less than $10 million in total debt to all credit providers, and the debt must be with a member bank;
- if you are a commercial property landlord, you must provide an undertaking to the bank that for the period that you receive repayment relief from the bank, you will not terminate your leases or evict current tenants as a result of rental arrears arising due to the impacts of COVID-19;
- you advise the bank that your business is affected by COVID-19; and
- you were up to date with payments owing under your current facilities with the bank 90 days before applying for the relief.
It is important to bear in mind that during the period of the relief, interest you owe to the bank will not be waived, but will be capitalised (or added) to the principal loan, with interest to then accrue on that larger principal amount.
How can I apply?
The measures are to be implemented on an opt-in basis, meaning that you will need to contact your bank to apply – which you can do through the usual means, for example via its website.
At this stage, however, the ABA's proposed extension of the small business relief measures is subject to authorisation from the ACCC. The ACCC recently granted urgent interim authorisation to the existing small business relief measures offered by the ABA (up to the $3M threshold), and we expect the ACCC will shortly do the same for this proposed extension.
Important considerations to keep in mind
We outline below some important considerations for small businesses and commercial landlords to keep in mind when considering whether to apply for the small business relief measures:
- As noted above, interest on your facilities with the bank will continue to accrue and will be capitalised during the relief period. You will therefore need to look ahead and consider how you will deal with having to repay the increased debt owed to the bank once the relief period comes to an end. A couple of ways you may seek to address this with your bank include to discuss extending the term of the loan to allow you extra time to pay, or to increase the amount of loan repayments to account for the interest accrued during the relief period. These are just a couple of examples, but what avenue is appropriate will depend on your specific circumstances.
- It is important to ensure that any agreement you reach with your bank is appropriately and accurately documented. You need to be clear on what your obligations are both during and after the relief period to ensure there is no confusion or risk of disputes arising down the line. In a similar vein, you need to understand and be clear on the terms of any undertaking that you provide. You may want to make sure, for example, that the undertaking does not prevent you from terminating a lease for reasons unrelated to COVID-19.
If you are considering applying for small business relief with your bank, it is important that you understand your rights and obligations in relation to that relief. We at McCabe Curwood would be happy to provide you with any assistance you need in these uncertain times.
- If you are negotiating with the bank on any of the above matters, it is crucial that you understand what you are agreeing to, and if you are uncertain, that you seek independent legal advice. We would be pleased to assist you with any discussions with your bank regarding the small business relief measures, and to review and advise on any related documentation, particularly relating to any undertaking you need to give, or proposed variations to your existing facility arrangements to apply during or after a relief period.