COVID-19: Small Business Cashflow Loan Scheme

May 1, 2020

The Government has announced a new loan scheme allowing small businesses to access loans of up to $100,000 to assist with immediate cashflow support. Further details around the Small Business Cashflow Loan Scheme were revealed on Friday 1st May by the Minister of Finance and Minister of Revenue.

The new loan scheme is separate from the Business Finance Guarantee Scheme under which the Government has agreed to guarantee up to $6.25b of bank lending to small businesses.

We have sourced the following information directly from the Government, followed by comment from CEO of Partners Finance & Lease, Francis Fitzgerald.

What is the Small Business Cashflow Loan Scheme?

Here’s what we know:

  • The Small Business Cashflow Scheme will be accessible to small businesses with 50 or fewer full-time employees
  • Companies will be entitled to $10,000, in addition to $1,800 per equivalent full-time employee up to a total of $100,000
  • Loans will be interest-free if they are repaid within a year. The interest rate will then be 3% for a maximum term of five years
  • Repayments are not required for the first two years
  • Eligibility will be the same as the Wage Subsidy Scheme
  • Businesses will also need to demonstrate that they are a viable business and the money will be used for core business operating costs and enter into a legally binding loan contract
  • The scheme will be administered by Inland Revenue who will be taking applications from May 12th and will pay out very shortly thereafter.

You can keep up to date via Inland Revenue here.

Business Finance Guarantee Scheme

The business finance guarantee scheme is available for small and medium-sized businesses.

Here’s what we know about the scheme:

  • Under the scheme, businesses with annual revenue between $250,000 and $80-million can apply to their banks for loans up to $500,000, for up to three years
  • The scheme will offer a total of $6.25 billion in loans to New Zealand businesses
  • To be eligible to apply for loans under the scheme your business must be New Zealand-based and with an annual turnover between $250,000 and $80,000,000
  • The Government is guaranteeing 80% of the risk, while the banks are covering the remaining 20%
  • A normal lending process will be followed by the banks, which will make the lending decisions
  • If you or your business was on your bank’s credit watch list at the outset of the COVID-19 crisis, you will not be eligible for a loan under the scheme

May 1st update: Finance Minister, Grant Robertson also announced the Government would be removing the requirement for a General Security Agreement.

He said: “The Government is also making changes today to the criteria for the previously announced Business Finance Guarantee Scheme, including removing the requirement for a General Security Agreement. Further changes to the scheme will also be considered to ensure it plays a useful part in providing support to businesses.”

More information about the BFGS here.

What next?

CEO of Partners Finance & Lease Francis Fitzgerald said: “We encourage businesses to take advantage of the Small Business Cashflow Scheme and consider how it will benefit you going forward. How can that money be best used to support your business with a view of the next 12, 18, or 24 months as opposed to how it would have been used in the business three months ago. There is going to be adversity but there are also going to be opportunities – how can this funding help you tap into those opportunities?”

For more information about preparing your business post COVID-19 click here.

Please note this article is for informative purposes only and does not constitute legal advice.