RIC Drought Loans (April 2020)
In the November 2019 News Bulletin No: 129, there was an overview of the RIC Drought Loan which is currently available. A brief summary of this loan is as follows:
Loan of up to $2mil
2 years interest free
3 years Interest only (currently 2.11%pa)
5 years principal & interest
The majority of the information in the November article has not changed, however there are a few updates that have come to light more recently.
There is a reasonably substantial application form available on the RIC website. This form needs to be completed and it needs to be accurate. Details collected on this form are cross checked with official records such as driver’s licence, ASIC & ATO records, so they need to match exactly. If the details provided do not match official records, the form will be returned. RIC make no apology for this, as they are lending government money and therefore must ensure that they are not defrauded by someone posing to be an eligible business when they are not.
Whilst this application process may seem onerous, the saving to a business borrowing $2,000,000 could be in excess of $200,000 over the first 5 years of the loan. Therefore some time spent on the application would be well rewarded.
The application form can be found at the following address: https://www.ric.gov.au/sites/default/files/documents/RIC%20Drought%20Loan%20Application%20v6.pdf
Loan repayments for the last 5 years of the loan are to be principal and interest. These repayments are calculated based on a 15 year loan term. Therefore, assuming an interest rate of 2.11%pa, the repayments would be approximately $155,000 pa for a $2.0m loan.
The loan can be paid out at anytime, so at the end of the first 5 years it could be refinanced, thereby avoiding the required principal repayments after having benefited from the interest free and interest only period.
The interest free period is two years from the start date of the loan. All successful applicants receive the full 2 year interest free period, regardless of the date of approval and drawdown. Older loans that were in place prior to the introduction of the interest free period, will not be disadvantaged, as they will still receive the benefit of the 2 year interest free period.
Security taken is generally land, being in the form of a charge or second mortgage over all land, or alternatively it could be a first mortgage over a specific parcel of land.
It is anticipated that the application process for this loan will require some extra work and may take some time. However, it does have the potential to provide significant savings, which will most likely be worth the effort.