As we head into lockdown and the prospect of many businesses facing the complete loss of income for the month of April, the Government have announced Government backed loans for small and medium businesses with $6.25 billion set aside for this purpose.

Businesses with turnover of between $250,000 and $80 million may be eligible for loans of up to $500,000 for a term of up to three years.

"The Business Finance Guarantee Scheme will provide short-term credit to cushion the financial distress on solvent small and medium-sized firms affected by the Covid-19 crisis," the Minster of Finance, Grant Robertson said in a statement.

While the scheme is broadly like that of Australia, where the risk is shared equally between banks and the Government, under the New Zealand scheme, the Government will take 80 per cent of the risk.

The Government believes that a higher level of Crown guarantee will encourage the banks to lend to businesses that are solvent but who have encountered significant difficulty. "The banks, not the Government, will make decisions on whether the businesses should be eligible for the loans," Robertson said.

The scheme leverages the Crown's financial strength, allowing banks to lend to ease the financial stress on solvent firms affected by the Covid-19 pandemic.

The Government will be monitoring this scheme and may be prepared to evolve this scheme over time if necessary.

INITIAL BANK RESPONSE


Although finer details are yet to be announced, some banks have made initial responses on the new scheme.

Kiwibank would look at each business customer to see how best it could help them, including the issuing of new facilities to support existing customers and those wanting to sign up, the general manager said.

A spokesperson from Westpac NZ said it had talked to tens of thousands of customers from small to medium-sized businesses to larger corporate customers.

Many businesses were asking what help was available if revenue fell, while some were worried about paying their staff and their suppliers.

ASB Bank was offering businesses access to emergency funds of up to $200,000 through a 180-day temporary overdraft facility or working capital up to that amount.

Additionally, ASB loan payments could be deferred for up to six months, although interest would still accrue. Moving to interest-only loans or extending terms were other options, and the bank’s lending criteria and terms and conditions applied.

A spokesperson from BNZ said while there was no one-size-fits-all approach, the bank was ensuring businesses could look after their staff and “ride out a period of low activity.”

Businesses had asked BNZ for help in managing costs and cash flow, supporting staff, accessing the government’s support and structuring their debt, the spokesperson said.

The bank was being flexible with debt repayments, including offering principal repayment holidays.

Moreover, BNZ’s bankers could provide “immediate access” to funds to help businesses with short-term cash flow requirements.


ACT NOW


Most business face drastically reduced income levels for March, April and possibly longer.

Whilst the wages subsidy has been welcomed relief for business owners and employees trying to ride out this crisis, it simply won’t be enough to keep a lot of business afloat and employees’ jobs safe.

This Guarantee Business Loan will be vital for the survival of a great number of businesses.

We anticipate that demand for these loans will be greater than the $6.25 billion set aside, so ifyou plan on utilising the Guarantee Business Loan scheme, we recommend that you apply early.

We are still waiting on the final details from the banks of how this scheme will work but if you want any help in lodging an application, please contact one of our advisors now.

REAL TIME ACCOUNTING TEAM