Coronavirus – Business Finance Guarantee Scheme
The government has announced details around their Business Finance Guarantee Scheme.
The intention is to assist businesses with both cashflow and operating expenses.
The scheme will offer a total of $6.25 billion in loans to New Zealand businesses.
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. The banks will make the lending decisions.
Rules of the scheme
The rules relating to the scheme are as follows:
- 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;
- You will need an existing relationship with the bank;
- You will already have drawn down on any existing facilities you have with the bank including but not limited to credit cards, trade finance, debt factoring or other loan facilities.
What won’t be covered
- Property developers and investors along with agricultural businesses are excluded;
- Loan proceeds cannot be used to purchase capital assets or projects, distribute dividends to shareholders or to “on lend” to businesses outside the borrower’s group of companies;
- Existing lending schemes are excluded; and
- The scheme doesn’t cover refinancing existing debt unless it was advanced on or after 16 March 2020.
Bear in mind that some banks may have their own exclusions. Further details can be found on your bank’s website.
Other bank assistance
A brief survey of bank websites today showed that additional support is also available including:
- Temporary overdraft of up to 60 days;
- Interest only lending for up to 3 months;
- Repayment deferral on existing business lending of up to 3 months; and
- Early access to term deposits.
Our View
Clients should be careful when considering applying for additional finance. Director’s in particular should ensure that they make any application with full knowledge of the potential impact of the loan on the business in the medium term. A cashflow analysis is absolutely essential along with businesses testing a range of scenarios to ensure that their assumptions are valid.
It’s vitally important that clients read the terms and conditions of any additional loans to understand the extent of their personal exposure.
If you are considering any application under the scheme, we urge you to get in touch to discuss your circumstances with us. We can also assist with the preparation of management accounts or annual financial statements as these will be required for your application.
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