Coronavirus – Small Business Cashflow Scheme

Coronavirus – Small Business Cashflow Scheme

Coronavirus – Small Business Cashflow Scheme

The government has announced a new interest free loan facility for SMEs, along with some overdue changes to the existing Business Finance Guarantee Scheme.

Small Business Cashflow Scheme (SBCS)

This newly announced scheme provides a loan facility for SMEs that employ 50 or fewer staff. The amount is capped at $100,000.00.

These loans will be interest free if they are repaid within a year.

If the business requires a longer term, the interest rate has been set at 3% for up to five years. Repayments will not be required for the first two years of the loan.

The government has set some arbitrary limits on the size of the loans to be drawn down based on the number of employees each firm has.

Every firm will qualify for a base loan of $10,000.00.

After that, the business can draw down an additional $1,800.00 per full time employee.

For instance, a firm with 50 employees would qualify for an additional $90,000.00 (50 x $1,800.00). A firm with three employees would qualify for an additional $5,400.00 (3 x $1,800.00).

In order to apply for the SBCS loan, clients will need to do the following:

  • provide their New Zealand Business Number (NZBN) – businesses and organisations without an NZBN will need to apply for one here;
  • confirm their business or organisation is experiencing a minimum 30% decline in actual or predicted revenue from January 2020 to June 2020 in the same way they may have done when applying for the wage subsidy scheme;
  • confirm their business or organisation existed before 1 April 2020;
  • confirm their business or organisation is viable and ongoing, have a plan to ensure it remains viable and ongoing, and there is evidence Inland Revenue can use to check this;
  • confirm the loan will be used to pay for core operating costs (including, but not limited to, rent, insurance, utilities, supplier payments, or rates);
  • confirm the loan will not be passed through to the shareholders or owners of the business or organisation, for example, by a dividend or a loan to the shareholders or owners;
  • confirm they have the appropriate authority to commit their business or organisation to this loan;
  • confirm they are 18 years or over and have the legal right to apply for the loan;
  • confirm they are aware Inland Revenue is not providing financial or other advice regarding the loan; and
  • agree to the loan terms.

Details of the terms and conditions can be downloaded here.

Inland Revenue will be administering the scheme and will take applications from 12 May 2020. You can read more about the scheme on Inland Revenue’s website here.

The government intends that this scheme will only be open for one month from that date.

Business Finance Guarantee Scheme – Important Change

The previously announced Business Finance Guarantee Scheme is being changed. There has been a chorus of criticism in recent days around the need to provide collateral with these loans and the government has acted.

The United Kingdom had a similar scheme but reduced the rules around security for these loans. The New Zealand government has followed suit.

For loans of more than $50,000.00, the trading banks will no longer need to use their best endeavours to obtain security from the borrower using a general security agreement.

Our View

We welcome the cashflow loan announcement at such such a critical time in the business cycle. Cashflow is the number one concern for all SMEs at the moment. Many may have recommenced work this week with the knowledge that they may not be paid for another month or more.

The change to the Business Finance Guarantee Scheme is a clear admission that the original scheme simply was not working. The government has listened to business. They have looked at the UK example and changed the terms of the scheme accordingly.

We still advise caution for all SMEs who want to enter into a loan agreement. Loans need to be paid back and it is essential that business owners have thorough cashflow forecasts, prepared conservatively, to show that any lending is prudent.

IRD Update – 11 May 2020

Inland Revenue has sent advice to accountants and tax agents regarding the Small Business Cashflow Scheme.

They have advised that accountants will not be apply to apply for the loan on behalf of clients. Clients must apply directly with the department.

Applications for the SBCS will close on 12 June 2020.

Most applicants will receive funds within 5 working days.

The department is also advising clients to talk with their financial advisor before proceeding with this application. We are very happy to discuss this in confidence.


Angus is the CEO and founder of Generate Accounting.