Business Finance Guarantee Scheme
At SBA we are focused on supporting our business clients through the COVID-19 pandemic and the alert level lockdowns and trading restrictions, now and in the future.
The latest from the government regarding their business support package is the Business Finance Guarantee Scheme set up to support the New Zealand economy during the COVID-19 pandemic. Businesses can start applying for these loans now.
The Business Finance Guarantee will help businesses with cash flow and operating expenses, and comes in alongside the wage subsidy scheme to help keep people in jobs, and workers and employers connected during the lockdown. Support will be prioritised for new loans to meet urgent liquidity and bridging finance requirements for businesses that are disrupted by COVID-19. While the risk of the loan is shared between the Government and the bank, we remind you that business owners will be required to repay these loans.
Under the scheme, businesses with annual revenue between $250,000 and $80 million can apply to their banks for loans up to a maximum loan amount of $500,000, repayable over a period of three years. The scheme will offer a total of $6.25 billion in loans to New Zealand businesses. Interest, standard fees and credit criteria apply.
Please be aware that this additional funding will add to the costs of running your business, so the loan should be considered carefully and factored into your annual budget and business plan. Consider the expected financial impacts on the business over the next six months and what a return to more normal business might look like over the next 2-3 years as in; all additional measures available to the business, including Government support that you have or will receive, reduced operating expenses (for example, reduced or deferred costs) and any additional sources of income and/or capital during this time. Hence the importance of having and working to a budget and also working with your SBA accountant to produce a cashflow forecast.
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. Further details can be found on the banks’ own websites. Links below:
Businesses impacted by COVID-19 can apply for a loan under the scheme from Thursday 2 April, with loans drawn down on or before 30 September 2020, or until the scheme funds have been allocated. Funds are limited, and are available only for eligible businesses.
Industry exclusions apply and excluded purposes for these loans apply:
- Property development and property investment
- Being a local authority, a council-controlled organisation or a council organisation for the purposes of the Local Government Act 2002
- The manufacture of cluster munitions
- The manufacture or testing of nuclear explosive devices (NEDs)
- The manufacture of anti-personnel mines
- The manufacture of tobacco
- The processing of whale meat
- Recreational cannabis
- The manufacture of civilian automatic and semi-automatic firearms, magazines or parts
- Agriculture (which, for the avoidance of doubt, does not include horticulture, viticulture or aquaculture, or services to agriculture)
- Any other activity notified by the Government in writing (this list will be updated should that happen).
Excluded purpose means one or more of the following:
- Capit al assets or projects, other than business as usual expenditure which does not exceed 5% of the principal amount of the supported
- Dividends to be distributed outside the applicant’s guaranteeing
- On-lending outside the applicant’s guaranteeing
- Refinance of an existing loan or facility with your bank or another organisation (unless agreed in writing)
- Any purpose related to an excluded activity
Eligibility criteria for the Government Business Finance Guarantee Scheme
Please review the below criteria to determine if you’re eligible for support under this scheme:
- Your business is already an existing customer of the bank considering the loan.
- Had turnover of between NZ$ 250,000 and NZ$ 80,000,000 at the end of its 2019 financial year.
- Is a New Zealand-based business (the Government may define this – please contact your SBA accountant if you’re unsure whether this applies to you).
- Isn’t engaged, as material part of its business, in an excluded activity as listed.
- In assessing the lending, banks will need to look at the impact of COVID-19 on your business operations, your trading position before the COVID-19 crisis and your plans for when the country returns to something resembling normality.
- Can only be used to meet urgent liquidity or bridging financing needs due to disruption COVID-19 has caused your business and not for any excluded purpose.
- Cannot be drawn or accessed before using any existing banking facilities (other than a credit card, trade finance loan or other types of loan that the bank provides that could be utilised).
Banks are required to disclose information, including your personal information, relating to BFGS loans to government bodies, including government ministries and the Reserve Bank of New Zealand. To be eligible for a loan, you will have to agree to sharing your information in this manner.