On Monday 30 March 2020, the ACCC approved the Australian Banking Association and banks to co-operate to provide COVID-19 business loan relief packages.
Participating banks have broadly agreed offer a proposed relief package.
What relief does it provide?
- A deferral of principal and interest repayments for all standard business loans of a business customer for 6 months (interest will be capitalised);
- Up to 30 September 2020 or for the period of the loan deferral, whichever is later, participating Banks agree not to enforce business loans for non-monetary defaults, other than certain excluded non-monetary defaults; and
The ACCC notes that individual banks can still offer more favourable and tailored terms to business customers outside of the above agreement.
What is capitalised interest?
“Interests will be capitalised” means participating banks will either:
- Extend the term of the loan repayment to account for interest incurred during the deferral period and keep the level of repayments the same; or
- Increase the level of loan repayments to account for the interest incurred during the deferral period, but keep the term of the loan repayment the same.
Note: the relief package clearly states that participating banks will not apply or require a payment of the capitalised interest in a lump sum at the end of the deferral period.
The package does not cover other defaults
Banks will continue to enforce the more serious non-monetary defaults set out in para 80 of the March 2020 Banking Code of Practice. These include defaults arising from bankruptcy, liquidation, insolvency (from a borrower or guarantor), failure to keep appropriate insurances, failure to maintain licences or permits necessary to operate the business, misleading representations made to the bank, failure to comply with laws and other matters.
Who can access the relief package?
The relief measures will be available to all current business customers of participating banks, in all sectors of the economy, and on an opt in basis where:
- The customer has advised that its business is affected by COVID-19;
- The business has total business loan facilities of less than $10M;
- The customer was current in terms of existing facilities 90 days prior to the application;
- The business is operated in Australia with less than 20% foreign ownership; and
- For commercial property customers with total loan facilities of less than $10M, the customer provides a self-declaration that they will not terminate the leases or evict tenants based on non-payment of rent for the period during which interest is capitalised. On the basis the non payment of rent is a direct result of the COVID-19 outbreak.
What do you need to do to access the package?
Contact your relationship manager or visit your participating bank’s website to review the application process and the bank’s specific terms and conditions for the loan repayment deferral package.
Please note, the terms and conditions may differ between participating banks with respect to the broad offering.
What if I have more than $10M facility?
For borrowers with total credit facilities above $10M, relief will be considered on a case by case basis.
Which banks are participating?
Currently more than 10 of Australian’s largest banks and financial institutions have agreed to participate. For more information on the participating banks please contact our office.
Next step: relief for commercial tenants
The National Cabinet is next meeting on Friday 3 April 2020 to discuss the proposed government response to Commercial leases.
How can HWL Ebsworth help you?
At HWL Ebsworth our National Team is made up of Partners (and experts) in the Property, Banking and Finance, Litigation, Construction, Corporate/Commercial Groups and Insurance are committed to considering national issues in real time for our clients in relation to the widespread ramifications of the COVID-19 pandemic.
This article was written by Christopher Conolly, Partner, Andrew Flannery, Partner, Kendra McKay, Partner and Maged Jebeile, Special Counsel.