Policy Guidelines applying to interest rate subsidies for small businesses in Victoria

1) Interpretation

a) In these Guidelines, unless the contrary intention appears:

i) Applicant means a Small Business applying for Support under the scheme.

ii) Business activity is defined as legal activity for profit directly associated with the applicant’s viable commercial business (not a hobby) and is measured by business turnover. The activity should occur with farming enterprises located in the Exceptional Circumstances area or in the case of businesses in towns that are substantially reliant on farmer income, have less than 10,000 population and are located in an Exceptional Circumstances declared area.

iii) Business Assets are the assets owned by the Small Business.

iv) Business Turnover means the value of all goods and services supplied by the Small Business (or likely to be supplied) from its Business activity during the current month or from the last completed Business Activity Statement (BAS) period plus the value of all those supplied during the past 11 months or respective BAS periods to calculate the annual business turnover. When calculating annual business turnover, do not include:

(a) Any GST charged;

(b) Goods and services supplied that are not connected with the business (such as sales of a private nature of personally owned goods); or

(c) Transfer of capital assets (such as amounts received from the sale of business assets).

For most applicants, annual business turnover will be the sum of business sales of goods and services for the year ending on the last day of the current month (excluding GST).

Rural Finance may use other methods for determining or assessing business turnover.

v) Exceptional Circumstances area - an area that has been declared by the Australian Government as suffering Exceptional Circumstances.

vi) Exceptional Circumstances - a rare climatic or other event that:

(a) has resulted in a rare and severe downturn in farm income over a prolonged period (i.e. greater than 12 months);

(b) cannot be planned for or managed as part of farmers’ normal risk management strategies; and

(c) is a discrete event that is not part of long-term structural adjustment processes or of normal fluctuations in commodity prices.

vii) Employee means a person paid for his/her labour.  If the person is contributing capital or other resources, has a say in what work is done and how it is done, is paid according to the results he or she achieves, and shares in the profits and losses, then they are likely to be either/or a partner, a director or an independent contractor, not an employee.

viii) Farming enterprise means an enterprise carried on by a farmer within the farm sector in a State, the Northern Territory or the Australian Capital Territory.

ix) Full time work is not less than 35 hours per week. Businesses with a range of employment arrangements should calculate the number of hours worked by employees such as casuals and part-time workers and divide that total by 35 to determine full time equivalents (for example three casual employees working 12 hours per week work a total of 36 hours per week, equates to one full time employee).

x) Small Business means a commercial enterprise that:

(a) has up to 100 full time employees or equivalent;

(b) holds a registered Australian Business Number;

(c) derives 70 per cent or more of its normal total business turnover from the provision of goods or services from farming enterprises in EC declared areas; or operates in towns that are substantially reliant on farmer income, have less than 10,000 population and are located in an Exceptional Circumstances declared area.

xi) Viable means having prospects of long term viability if not for exceptional circumstances which have detrimentally affected the business turnover of the small business concerned.

2) Purpose of Support

a) The purpose of the Support is to assist Small Businesses who are:

i) reliant on farming activities carried out in Exceptional Circumstances areas during the period 7 November 2006 until 30 June 2011 or the end of the Exceptional Circumstances declaration for the relevant area; whichever occurs first,

ii) during the period 25 September 2007 until 30 June 2011 or until the end of the Exceptional Circumstances declaration for the relevant area for Small Businesses that operate in towns that are substantially reliant on farmer income, have less than 10,000 population and are located in an Exceptional Circumstances declared area, and who would otherwise have prospects of long-term viability, but for the exceptional circumstances which have detrimentally affected the Small Business’ business turnover, leading to financial difficulty.

b) The Support will facilitate one or more of the following strategies:

(a) improvements in business viability;

(b) business continuity; and

(c) debt restructuring.

3) Payment of Support

a) The Commonwealth will contribute 90 per cent of the Support, and the State will contribute 10 per cent of the Support.

b) Support is subject to the following conditions:

i) the Applicant for Support is a Small Business;

ii) the Support during the first 12 months of assistance for any new Exceptional Circumstances declared areas after 7 November 2006 should be no greater than a maximum of 50 per cent of the interest rate payable on, and associated costs of borrowings being subsidised, where the small business derives income from within the new Exceptional Circumstances declared area;

iii) the Support during the second and subsequent years of assistance will not exceed 80 per cent of the interest payable on, and associated costs of, the borrowings being subsidised;

iv) when determining the level of commercial borrowings to be supported for an initial interest rate subsidy, Rural Finance may deduct from the balance of existing commercial borrowings, the full cost of the capital purchase where the capital purchase was:

(a) made since 7 November 2006 in the case of small businesses who derive 70 per cent of their income from farm related activities; or,

(b) made since 25 September 2007 in the case of Small Businesses that operate in towns that are substantially reliant on farmer income, have less than 10,000 population and are located in an Exceptional Circumstances declared area; and

(c) who would otherwise have prospects of long-term viability, but for the exceptional circumstances which have detrimentally affected the Small Business’ business turnover, leading to financial difficulty.

v) any commercial borrowings or associated costs of borrowings already subsidised by the Australian Government will not be considered for Support;

vi) the period for which a subsidy is provided will be determined in each case by Rural Finance, subject to clause 2, and will only be available for a maximum period of 12 months in respect of each application;

vii) for the first tranche of Support applications must be received no later than 28 days after tranche 1 ends. For subsequent tranches of Support applications must be received no later than 28 days after the declaration end date. In addition:

(a) eligibility must be assessed for each tranche; and

(b) the provision of Support in previous years does not guarantee support in a subsequent year or part thereof. Small Businesses not receiving support in the declaration year may be eligible in the subsequent year.

viii) to be eligible to apply for Support applicants must, under normal circumstances, have a Viable Small Business;

(a) the total amount of Support payable in each Exceptional Circumstance year may not exceed $100,000 per Small Business or part thereof if the declaration is less than 12 months.

c) Support may be made to the lender or the Small Business.

d) Small Businesses can apply for an additional interest rate subsidy within the same tranche as their last successful interest rate subsidy application on additional debt incurred in relation to drought carry-on on a pro rata basis, provided the total amount of Support does not exceed $100,000.

e) A Small Business can only apply for the next tranche period on interest rate subsidy no earlier than three months prior to the expiry of the applicant’s current application period of Support.

4) Assessment Criteria

a) In assessing the eligibility of an Applicant for Support, Rural Finance must be satisfied that:

i) the Small Business has derived 70 per cent or more of its normal total business turnover from the provision of goods or services for farming activities in EC declared or part thereof areas specified in the relevant Schedule to these Guidelines or, in the case of Small Businesses that operate in towns that are substantially reliant on farm income, have less than 10,000 population and are located in an Exceptional Circumstances declared area;

ii) the Small Business is in financial difficulty due to the impact of exceptional circumstances on farm enterprises, or farming clients, in Exceptional Circumstances declared areas:

(1) on considering whether a Small Business is in financial difficulty Rural Finance must consider:

(a) the total amount of interest payable per annum;

(b) the estimated business surplus over the medium term;

(c) the owner/lessor/operator’s equity in the Small Business in relation to the amount of current and future indebtedness, together with both business and non-business assets and income.

iii) the provision of the Support is necessary to achieve the strategies as outlined in clause 2)b) of these Guidelines;

iv) without the Support the Small Business would not have the capacity to achieve or maintain long-term viability:

(1) in assessing the likelihood of the Small Business being viable in the long-term, the following factors must be taken into account:

(a) the expected future capacity of the Small Business to be viable (without government assistance) as measured by its ability to meet, from estimated surpluses, its future financial commitments relating to:

(i) the Small Business operating costs;

(ii) living costs of the Small Business owner’s family;

(iii) servicing of the Small Business debts;

(iv) future capital requirements for plant and improvements; and

(v) investment requirements to return the Small Business to financial viability.

(b) the long-term economic trends which impact on the Small Business enterprise;

(c) the demonstrated technical, financial and business management performance of the Small Business; and

(d) the provision of financial support for the Small Business by commercial lenders through the exceptional circumstance and beyond.

v) the owner/lessor/operator has disposed of:

(a) all non-essential Small Business assets; and

(b) non-business assets, such that the net value of non-business assets is not in excess of double the Newstart Allowance Assets test for homeowners (partnered) or if an application is received during the period 25 September 2007 to 30 June 2011 (inclusive of the 28 day grace period) or prior to the closure of the Exceptional Circumstances areas, which ever occurs first, in which case the net value of non-business assets is not to exceed $750,000.

Note: investments in bona fide insurance and superannuation funds are exempt from the non-business assets test.

vi) the disposal of assets has been on commercial terms and has applied the proceeds to the Small Business enterprise (except where this would result in extreme financial hardship to the applicant);

vii) under normal circumstances, the owner/lessor/operator contributes at least 75 per cent of his/her labour to the Small Business enterprise (or in the case of the owner/lessor/operator also being a farmer, at least 75 per cent of his/her labour being contributed to the Small Business and the farming enterprise), at least 50 per cent of total business turnover is derived from the Small Business, and has operated the business for at least two years;

viii) the Applicant’s Small Business was affected by the impact of exceptional circumstances on farming enterprises in EC declared areas as defined in clause 2;

ix) loans supplied by a commercial institution, vendor or by private arrangements, are provided on commercial terms at arms length and the interest rate charged by the lender is competitive with that which is generally applicable to the type of loan(s) being subsidised;

x) Applicants who own/lease/operate more than one Small Business will collectively only be eligible for one interest rate subsidy on the commercial debts associated with the Applicant’s small business subject to the provisions of these Guidelines; and

xi) Applicants who are farmers and own/lease/operate one or more than one Small Business will collectively only be eligible for one interest rate subsidy on the commercial debts associated with either the Applicant’s farm or the small business subject to the provisions of these Guidelines and the provisions of the Guidelines applying to interest rate subsidies for farmers under the Rural Adjustment Act 1992.

5) Level of Support

a) The level of Support to be provided to a Small Business will be determined by the extent of Support needed for the strategies as outlined in clause 2)b) and will be subject to clause 3; and

b) the level of Support will be determined from budgets for the Small Business which make due allowance for financial demands on the enterprise appropriate to the exceptional circumstance.

6) Terms and Conditions to Attach to Support

a) Rural Finance must obtain agreement from the Small Business that it will use the Support only for the purposes specified in clause 2;

b) the period of Support in respect of any application is limited to a maximum period of 12 months or part thereof if the declaration is less than 12 months, in accordance with clause 3;

c) Rural Finance may terminate Support where the Small Business does not rectify breaches of the relevant terms and conditions of that support;

d) Rural Finance may attach other terms and conditions to the Support considered necessary for the particular case subject to obtaining the prior written consent of the Commonwealth; and

e) the Small Business and the relevant financial institution must agree to the terms and conditions of Support before the payment of Support.

7) Outcomes Expected from Support

a) The outcomes expected from the Support for the Small Business include:

i) a program has been undertaken or maintained to increase business productivity which will lead to improved long-term viability and financial self-reliance;

ii) the restructuring of debt has been implemented;

iii) the financial demands on the Small Business are reduced;

iv) a business which can be demonstrated by the business owner to the satisfaction of Rural Finance to be productive and financially viable (without government support) in the long-term is maintained; and

v) the Small Business is assisted to recover from the impacts on farm enterprises being located in areas declared to be in exceptional circumstances.

8) Variation or Revocation

a) The Minister reserves the right to revoke or vary these Guidelines at any time.

Dated this................................day of ..................................2010.

Conall O'Connell
Secretary, Department of Agriculture, Fisheries and Forestry

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Schedule 1

EC Declarations as at 16 June 2010

No	State	EC Area	Expiry Date
1.	NSW	Braidwood	31-Mar-11
2.	NSW	Condobolin	31-Mar-11
3.	NSW	Condobolin – Narrandera	31-Mar-11
4.	NSW	Forbes	31-Mar-11
5.	NSW	Goulburn – Yass	31-Mar-11
6.	NSW	Gundagai	31-Mar-11
7.	NSW	Hay	31-Mar-11
8.	NSW	Majority Western Division	31-Mar-11
9.	NSW	Riverina	31-Mar-11
10.	NSW	South West Slopes and Plains	31-Mar-11
11.	NSW	Young	31-Mar-11
12.	NSW	Dubbo Revised	31-Mar-11
13.	NSW	Molong Revised	31-Mar-11
14.	NSW	Nyngan Revised	31-Mar-11
15.	SA	Murray – Mallee	31-Mar-11
16.	SA	River Murray and Lower Lakes Corridor	31-Mar-11
17.	VIC	Central Victoria North Revised	31-Mar-11
18.	VIC	Central Victoria South Revised	31-Mar-11
19.	VIC	Mallee – Northern Wimmera	31-Mar-11
20.	VIC	North East Victoria	31-Mar-11
21.	VIC	Northern Victoria Revised	31-Mar-11
22.	NSW	Cooma – Bombala – ACT	30-Apr-11
23.	NSW	Bega Valley	30-Apr-11
24.	VIC	Central and East Gippsland Revised	30-Apr-11
25.	QLD	South-West Revised	15-Dec-10
26.	QLD	Northern Darling Downs Revised	15-Dec-10
27.	QLD	Central Darling Downs Revised	15-Dec-10
28.	QLD	Gulf	15-Jun-11
29.	SA	North West Rangelands	15-Jun-11
30.	SA	Central North East	15-Jun-11