One in four accommodation businesses could go bust if they are forced to refund Tamworth Country Music Festival 2021 bookings.
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A crisis summit held by Tamworth Business Chamber (TBC) revealed about 23 per cent of accommodation providers didn't have a refund policy that allowed them to move bookings to 2022.
Those same people admitted they would not be able to meet their financial obligations if customers demanded a refund, TBC president Jye Segboer said.
"We know there are businesses out there that simply will not be able to refund customers without taking a loan or looking at other ways to offset the deposit back to the customer," he said.
"We need to look at ways we can help support those operators, whether that's going to the government or looking at how we can support them to get a loan for those deposits.
"If they're not able to come up with a way then, unfortunately, we might see some closures across the region."
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A survey of accommodation providers showed for most businesses the festival provided 30 per cent of their annual profit.
He has decided to offer refunds to customers who booked for the festival despite his own financial losses as a result of COVID-19.
"We need the money but you can't keep the money, that's not what I do," he said.
"I have no issue with the festival being cancelled because of COVID, the problem I have is we have a situation where businesses are running at zero income and there's a complete lack of communication between the council, the festival committee and accommodation.
"We have people making decisions who are retired and financially secure, yes it is illegal to have the festival but it's illegal at the moment - we should have waited until at least December 1."
The cancellation of the festival left accommodation providers scratching their heads at Thursday's meeting to try to find ways to diversify and bring visitors to the region year-round.
One operator admitted to losing $8000 a week, and Mr Segboer said he is concerned about what the future looks like.
"Once JobKeeper does come to an end I do believe unless we see things improve, borders open and closures stop, we will see unemployment increase across the region," he said.
"Many of these employees won't have an option."