The Business Finance Guarantee scheme is announced for small and medium-sized businesses, and its stated aim is to protect jobs and support the economy. The scheme is part of the more-than $25 billion of economic support the Government has so far announced to help mitigate the damage the COVID-19 pandemic is having on the New Zealand economy. In effect the Crown will pay 80% of any loss incurred by a bank on a loan it makes under the scheme, after the bank has completed its normal enforcement procedures.
“For most businesses their most important relationship is with their bank. The Government is using its balance sheet to give businesses and their banks space to work together through this crisis”, said Finance Minister. Now look at the burning question for business owners; “am I eligible for a loan under the program?”
- Be New Zealand-based
- Be able to show annual turnover between $250,000 and $80,000,000.
- Not to have been on the bank’s credit watch list (nor you personally) before the COVID-19 crisis
The loan cannot be used to fund:
- Dividends to be distributed outside the Borrower’s guaranteeing group
- Re-financing existing debt
- Capital assets other than business as usual expenditure which does not exceed 5% of the principal amount of the loan
- On-lending outside the Borrower’s guaranteeing group, or
- All other excluded activities
The advice from the Government is that the Bank will decide whether the financing can be supported under the scheme through its normal credit assessment process and the Bank will also take into account your circumstances due to COVID-19. For businesses that need an injection of liquidity due to the COVID-19 crisis, the scheme needs to be considered seriously as does any application under it. However it should be noted that any business finance guarantee scheme loan will still be subject to Bank’s repayment terms, interest rates and other customary commercial loan terms. So, the scheme should not be seen as a Government hand-out nor even as a Government loan. Instead it should be seen as a Government guarantee to the Bank, which will be the lender. Having a solid commercial relationship with your Bank will therefore stand you in good stead when entering into the scheme.
It will also be vital to have good legal and accounting advice before forwarding an application and entering into any loan agreement under the scheme.