Business Finance Support
IMPORTANT: This post is specific to New Zealand. If you are not a New Zealand business/taxpayer then it is probably not applicable to you.
Small Business Cashflow Loan Scheme
On 1 May the government announced a new Small Business Loan scheme because “it has become clear that the support that is available to our small and medium businesses from banks is not meeting their needs nor our expectations as a Government.” The details are:
- the same as for the Wage Subsidy Scheme (30% decline in revenue year-over-year for any ONE month between Jan to June 2020 or compared to Jan/Feb)
- Employs 50 or fewer full time equivalent employees
- Businesses will also have to declare that they are a viable business
- Directly through Inland Revenue
- Opening on 12 May – closing 24 July
- $10,000 plus $1,800 per full-time equivalent employee, up to $100,000
- The money can only be used for core business operating costs
- Interest Free if repaid within a year
- 3% interest for a maximum term of 5 years
- No repayments required for the first two years (unless you want to take advantage of the interest free period)
Government Guaranteed Loans
The NZ Government has announced a business finance scheme to help small to mid sized businesses. To be eligible you must have annual revenue of between $250,000 and $80m. The loans are for up to $500,000 for up to 3 years. The conditions of these guaranteed loans were adjusted on May 1.
80% of each loan is guaranteed by the government, with the bank underwriting the remaining 20%. Applications are processed by your normal bank, and their standard lending criteria will apply. The loans are intended to provide for businesses’ current and upcoming operating cash flow needs, including things like rent and staff expenses. These loans will not be available to fund:
- capital assets/projects other than business as usual expenditure which does not exceed 5% of the principal amount of the loan
- dividends to be distributed outside the Borrower’s guaranteeing group
- re-financing existing debt advanced before March 16th
- on-lending outside the Borrower’s guaranteeing group, or
- excluded activities (see government website for more details).
Unfortunately, this is not a grant or a forgivable loan – you will have to pay it back.
Here are some additional notes I’ve gleaned from other announcements and webinars:
- Banks will require a General Securities Agreement (priority over all unsecured and future secured creditors over all assets and revenues) as well as personal guarantees from Directors/Shareholders – this was removed on 1 May.
- Normal lending criteria will apply – the banks are saying that if a business wasn’t viable or able to get debt prior to the crisis, then they will be unlikely to get funding
- You are expected to use up ALL of your available working capital before drawing down against this loan – this is a loan of last resort approach, not a first resort approach – this was removed on 1 May
- There are no application fees for these loans
Mortgage repayment holiday scheme
New Zealand’s retail banks are offering to defer repayments for all residential mortgages for up to 6 months for customers financially affected by COVID-19.
If you get a mortgage repayment deferral from your bank you will not need to make principal and interest payments on your loan for up to 6 months. This package is in addition to what banks are already doing individually to help affected customers.
Key details of this scheme:
- interest on these loans will still increase, and deferred interest will be added to the principal amount of the loan.
- Banks will assess the suitability for each customer who is asking for a deferral.
- Banks will have different approaches to how they manage the process for customers to opt into a mortgage deferral. Those details, including eligibility criteria, will be available on bank websites.
- Customers should contact their bank for further details or queries about the scheme.
Commercial Rent Reduction
If your business leases commercial space you may be entitled to a rent reduction if your business is shutdown. More recent versions of the standard ADLS Lease Agreement added clause 27.5 on “No Access in Emergency” to deal with events similar to the Christchurch Earthquake. The present Level 4 Civil Defense Lock-down seems to trigger this provision. The clause requires a “fair proportion of the rent and outgoings” to cease during the period that you are unable to gain access to the premises. You should talk to your landlord to negotiate a fair amount. It’s probably not fair to not pay your rent, but you should be able to negotiate a lower rate at least for the lock down period (assuming that you are not an essential business and are required to close your premises).