Aussie charities missing out on government-subsidised COVID-19 loans
22 July 2020 at 4:53 pm
While the loan scheme is being overhauled, sector advocates say it still falls short of what’s needed
It has been revealed only around 20 of the federal government’s 15,600 COVID-19 business loans have been approved for charities, prompting calls for greater support for the sector.
The government’s coronavirus loan scheme was designed to give organisations enough working capital to help them get through the pandemic, with the Commonwealth guaranteeing 50 per cent of an eligible loan up to $250,000.
But taking out loans through the scheme was not feasible for most charities, due to their “constrained and inflexible revenue streams” – which were highlighted in Social Ventures Australia’s recent COVID-19 policy snapshot.
Labor MP Andrew Leigh, the deputy chair of the House Economics Committee, told Pro Bono News that of the 15,600 loans approved so far, only 22 have gone to charities.
Leigh said in general, charities tended not to borrow as much as businesses do.
“They’re a little bit more debt averse and reasonably so, given the projections for donations in the next couple of years,” Leigh said.
“Charities tend to work on the basis of wanting the money in their bank account before they spend it.”
Leigh said given the failure of this scheme to help charities, the federal government needed to think about other strategies to support the sector amid the drop off in volunteers and donations.
He said the government needed to look at extending its emergency relief grants package, which provided $37 million to almost 200 organisations in April.
“I think it’s important to check in and see how the funding is being spent to ensure charities get ongoing support if they’ve spent that money already,” Leigh said.
The federal government has also recently provided $9 million to local community groups and organisations to support the work of volunteers, and created an incentive for philanthropic funds to ramp up their support for charities during the pandemic.
Government announces incoming changes to loan scheme
Charities were not alone in failing to take up the government’s COVID-19 business loans, with only $1.5 billion claimed by organisations despite a $40 billion loan capacity.
This week, Treasurer Josh Frydenberg announced an overhaul of the scheme from 1 October, bumping up the maximum loan size to $1 million, increasing the loan term from two to five years, and offering loans for purposes other than working capital.
Community Council for Australia (CCA) CEO David Crosbie told Pro Bono News that while these changes were welcome, the scheme was still not quite what the sector needed.
“Some charities will find the new expanded loans useful… but until we have cheaper longer term loans available to the charities sector that can effectively be used as an ongoing line of credit, I doubt many charities will see major benefit in taking up the new loans,” Crosbie said.
“The idea is good – bridging type finance through a crisis and inconsistent income period – but the product falls a little short of what charities are saying would be really useful.”
CCA has conducted targeted research that found many COVID-affected charities wanted loans of up to $50 million that were longer term (at least five years and up to 10 years) and had lower interest rates (around 2 per cent per annum).
Crosbie said most would use such a loan to underwrite lumpy or inconsistent income streams – for example a larger charity that received several million dollars each year in bequests but was unsure how much and when this would come in.
He noted that having a line of credit that cost very little to hold enabled longer-term investments in capacity, programs, services and organisational infrastructure.
“It makes sense to borrow at very low interest rates to meet short-term cash flow issues if it means not having to sell at the bottom of the market and if the charity is confident cash flow will return,” he said.