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Deferred Loan Payments | Where to next?

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Deferred loan paymentsThe six-month loan repayment deferrals are due to conclude at the end of September 2020, as Banks enter the next phase of support to assist customers. Whether you are a business or an individual who is currently under a loan deferral structure, you need to know what the next phase entails and what this means for you or your business.

The next phase, for most banks, will begin on 1 October 2020, where customers who are able to start paying their loans will be required to do so. Those who are still unable to pay due to ongoing financial difficulty will be assisted through the bank’s financial hardship process. If this is you, we suggest you seek professional advice sooner rather than later.

The next phase in more detail

It’s important to note that every bank and lender is different in terms of what they are offering. The following information is from the Australian Banking Association (ABA). ABA member Banks have developed this response following discussions with APRA and ASIC to provide the appropriate regulatory treatment. If you would like to know more details speak to your Ledge Finance Executive.

1. Return to full repayments

If you can restart paying your loan, then you’ll be required to do so at the end of your deferral period.

2. Start making partial repayments

If you’re in ongoing financial difficulty, you may have your loan restructured or varied to allow you to return to paying off your loan.

If you can’t restructure, you may be eligible for an extra deferral period of up to four months.

During this four month extension, you will be expected to work with your bank to find the best solution to return to repayments.

This four-month extension will not be automatic, it will only be provided to those that banks believe will genuinely benefit from extra time.

3. If you cannot pay

If, during or at the end of any deferral, you cannot make repayments, you will be assisted through your bank’s financial hardship process to determine your best long-term solution.

Banks will communicate with you in a clear and timely manner, act with honesty and integrity and treat you in a fair and ethical manner.

Want to know more? Speak to one of our Finance Executives here.

What you should know about loan deferrals and the implications involved

It’s not for free

You will still be charged the fees and interest on deferred loans. Yes, they have been paused for the deferral period, however these payments will be added back onto the loan when repayments begin again. Since your loan period has been extended, you will also be paying interest and fees for longer.

Loan relief is effectively hardship relief

Those undertaking repayment deferrals need to understand that this is essentially signalling to the bank that they are in financial hardship. This sends a conflicting message to the bank when the client then wants to acquire more debt facilities. In saying this, banks are all approaching this in different ways and we suggest you contact your Ledge Finance Executive for assistance.

The finance process has become more complex

As loan deferrals have been viewed as hardship relief, the finance process has become a lot more complex. It’s not as simple and quick as it once was like pre COVID and those wanting finance need to allow some extra lead time – We might still get the right result but it’s going to take slightly longer.

Banks have been extremely supportive of individuals and businesses during these times of uncertainty and we are all doing the best we can to support one another.

Where to next?

Now that the deferred loan repayment period is up you need to decide if you can either pay in full, partially pay, or if you can no longer make repayments.

Forecast your position

Re-assessing your cash flow position and forecasting to see what the future of your operations will look like is a key component to understanding your next steps. When doing so businesses should factor in the fact that many other relief packages will eventually come to an end, i.e. JobKeeper, rent relief, tax relief, and so on.

Some key questions to ask yourself to better understand your position moving forward:

  • Is your business viable?
  • Will you be able to meet your ongoing commitments?

Respond to your Bank’s communications

If you receive any communication from your bank, you need to respond to advise whether you will be paying in full, partially paying, or if you can no longer make repayments. In this instance, it’s a good idea to seek professional advice sooner rather than later.

There are still things we don’t know

It is still not clear exactly how banks and lenders will react to those who have undertaken loan deferral support moving forward. Cash flow and credit support is a challenge and difficult field to navigate as it has been evolving rapidly. If you have any questions regarding your situation, please contact your Ledge Finance Executive and we will do our best to assist you.

Speak to your Ledge Finance executive

If you’re struggling with your repayments, speak to your Ledge Finance Executive, in the first instance, to review your current situation and create a structured solution better suited to your circumstances. We will be open and honest with you and put you in touch with the right people.

Frequently asked questions about loan deferrals

You will need to decide whether you will start make repayments in full, partially pay, or if you can no longer make repayments. If you choose the latter, we suggest you seek professional advice sooner rather than later. 

If you are in a position where it is not financially feasible for you to start making repayments and your loan deferral is coming to an end, you should seek professional advice sooner rather than later.

Banks and lenders are all dealing with the loan deferral process in various ways. If your bank contacts you, you should respond and advise them of your decision to either pay in full, partially pay, or if you can no longer make repayments. If you choose the latter, we suggest you seek professional advice sooner rather than later. Ledge has a network of professionals who can help you in this instance. Contact your Finance Executive to discuss your situation.

Many banks and lenders are advising the client to contact them directly. However, in some cases Ledge can assist and potentially escalate your concerns with the bank.

According to the Australian Banking Association, some banks are offering small extension periods. This extension is not automatic and is only for those who genuinely need extra time. If you are looking at this option, speak to your Ledge Finance Executive in the first instance and we can review your situation.

At Ledge, we have a large network of professionals who can assist you and your business, whether it be for accounting, insurance, legal, insolvency, and so on. If you have any questions about your current situation, speak to one of our Finance Executives who will be able to assist you with any queries you may have.

Please note the information provided here is general in nature and does not constitute financial, tax or other professional advice. The current environment is changing rapidly and rules and regulations for the measures explored above are constantly evolving. You should consider whether the information is appropriate for your needs and seek professional advice prior to making any decision.

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