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Government broadens Business Finance Guarantee Scheme substantially to include both agri and very small businesses; Also allows banks to write unsecured loans should they choose to do so

Government broadens Business Finance Guarantee Scheme substantially to include both agri and very small businesses; Also allows banks to write unsecured loans should they choose to do so
Grant Robertson. Press Gallery pool photo.

The Government is changing the rules around its Business Finance Guarantee Scheme so that more businesses qualify for taxpayer-underwritten bank loans.

Early Friday afternoon it quietly announced two significant changes to the scheme, through which taxpayers are underwriting 80% of bank loans to eligible businesses.

Agricultural businesses, which were previously excluded from the scheme, will now be included.

Agricultural lending makes up around 14% of bank lending. 65% of this segment is to dairy, which is deemed relatively high risk.

Secondly, the Government is removing the requirement for a “general security agreement” under the scheme. 

This means that for a loan of more than $50,000, a bank will no longer have to "obtain security from the borrower under a general security agreement".

Banks can however still require businesses to provide security, should they wish.

Late Friday afternoon, Treasury announced further changes to the Business Finance Guarantee Scheme.

Smaller businesses will now also be able to access loans under the scheme, as the requirement for businesses to have had a minimum turnover of $250,000 in the 2019 financial year has been removed. The $80 million upper limit remains in place.

Borrowers will no longer have to draw down on all existing facilities provided to them by their bank before applying for a loan under the scheme.

The term of temporary facilities that can be refinanced into the scheme has been extended from 90 days to 180 days.

And the date from which customers must not have been on banks’ watchlists from has shifted back to January 31, from February 28, recognising that some companies were impacted by COVID-19 earlier than others (eg forestry).

Property development and property investment are among the businesses that remain excluded from the scheme.

Finance Minister Grant Robertson in March put aside $6.25 billion for the scheme. 

He couldn't provide interest.co.nz with detail around how much additional risk taxpayers are taking on as the scheme is expanded.

Banks: Business Finance Guarantee Scheme useful longer-term; banks meeting immediate needs now

The Business Finance Guarantee Scheme is distinct from the Small Business Cashflow Loan Scheme, unveiled on Thursday and detailed on Friday. Under this scheme, the Government will provide small businesses with loans directly through the Inland Revenue.

Robertson said the Business Finance Guarantee Scheme isn’t completely meeting businesses' needs nor the Government's expectations. 

Businesses have been complaining they're struggling to get loans under the scheme.

However New Zealand Bankers' Association CEO, Roger Beaumont, pointed to the scheme being useful in helping firms meet their longer term needs. 

“For immediate business needs, banks have lent $6.1 billion to businesses since we went into lockdown on 26 March," he said. 

"That’s lending outside the Business Finance Guarantee Scheme. And it’s almost as much as the total lending limit under the scheme."

Nonetheless, Beaumont welcomed the changes to the scheme, saying they come "as a result of industry feedback".

"We hope this means more customers are able to participate in the scheme for their longer term needs."

Beaumont wasn't told about the changes until just before Robertson announced them.

Robertson said: “Further changes to the scheme will also be considered to ensure it plays a useful part in providing support to businesses.”

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79 Comments

24
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I can't see how this is going to end well. Banks are basically encouraged now to lend to anyone and everyone, zombie companies, companies who were going under, non performing farms etc etc. They then get to keep any profits... but if there is a loss? Don't worry, tax payer has under written them.

Moral hazard anyone? ANYONE???

Does the IRD even have the expertise to assess loans? Let alone administer them?

Government just set market distortions meter to 11. They are going full hog, bugger the consequences. Whatever happened to targeted assistance?

It does seem that way.

Any system of loaning that doesn't match risk with the cost of money must lead to a bubble, just like the GFC.

The main thing to remember years from now when it all implodes, is that it was government policy and not the banks that was responsible.

There won't be bubbles like the GFC as IRD won't go bankrupt. However, we may see more people unemployed if those viable SME do not survive which in turn will result in more government spending and continued financial deficit.

Fannie Mae and Freddie Mack were ALSO government backed and could not go bankrupt. So that's not a mitigating factor.

This is a very positive development, and exposed overseas owned banks for what they are. Short term profit seeking parasites.

One can only hope these loans are not subsiding the big banks, who have overexposed themselves. Government would be better off refinancing the entire loan (if viable), rather than seeing more profit being exported offshore.

All countries need small business to facilitate competition and enterprise, and I'd far rather see (productive) small business supported in these times, rather than big business blotted with overpaid executives. Its a blatant lie big business add more value, when most grow by buying out smaller competition.

Looks like we finally have a government that understands locally owned banking is overall much better for the local economy than the model which saw ex politicians (which facilitated more lending) on the staff and management to those fair weather sailors who saw the benefit.

Ask yourself what did Simon Power know about banking. Nothing, but it just happened that Westpac enjoyed the benefit of big loans to Solid Energy (now history) and the government banking contract. We have all been conned by ex politicians.

Another fact, during Jonkey tenure total lending in NZ doubled from $200 to $400 billion, with the majority of this short term benefit of rising house prices and long term lending going to his current employer. Meanwhile he starved Kiwibank of capital, so it had limited participation in this artificial growth. How people can still worship this former Empire, god only knows, but with the tide going out his game has been exposed. Another fair weather sailor, which should be thrown in jail. Perhaps explains the knighthood.

Funny isn't it, or should I say two faced. So many here who criticised the banks as lending too brazenly, now criticise the banks for being too prudent. The answer, capitalise Kiwibank (the NZ one thats been closing its branches and withdrawing cheque facilities from the oldies) and let them take the risk by putting it onto the taxpayer) - I suspect the banks will happily open the door for Kiwibank to do so. The truth is the banks will support viable businesses, and as they have been instructed by treasury, not the others that won't survive.

Totally agree. Why don't we issue all government backed business lending via Kiwibank? We could use this crisis to bolster the locally owned bank that we are all ultimately shareholders of.

Like the property market -- Any system of loaning that doesn't match risk

The deck has been stacked against small business for decades, all the while money has been free and easy for property bubble blowing.

When what implodes ? The property market ?

Blobbles, just to be clear (because it's all a bit confusing), this story is about changes to the Business Finance Guarantee Scheme. Under this scheme, banks are writing loans to businesses, which are underwritten by the Government. So if a business defaults on a loan under this scheme, 80% of the loss falls on taxpayers. 

The new Small Business Cashflow Loan Scheme will see the IRD give businesses loans directly. So the taxpayer takes on all the risk. See this story for more on this.

Yes, glad to see we continue to prop up the banks.

Indeed, when do we progress to blood sacrifice? At the point of negative interest rates?

100% or 80% under writing by the taxpayer. Both near enough to each other to not really matter.

20% of a billion dollars is pretty close to the value of all of New Zealand's organic kiwifruit exports.

Okay mate, you set up targeted assistance in the middle of a global pandemic without it turning into a bureaucratic nightmare.

RobboBank - what could go wrong?

Wouldn't it be good if the govt could lend to the brrowers directly without the intermdiary?

This will save the middle-man cost. However, the government will need to employ some mechanism to assess the viability of the loan applications either by outsourcing or hiring bank professionals or accountants.

The government does not possess the processes, the staff, the skills or the experience to run a retail bank. They chose to outsource that to the banks using a licensing scheme a long time ago.

It does matter who they loan directly to if those loans if;

1. They do not link loan risk to the cost of the money,
2. They are not subject to normal banking regulatory oversight, and
3. They don't put the required protections in to stop corruption.

What makes you think the present lot of banksters know what they are doing? Havent you noticed they are on government life support too!

Though in a different form, it's very reminiscent of the Govt. guarantee to South Canterbury Finance. And we know how that ended

In that case the government stood behind a retail financial entity.

In this case the government have become the retail bank entity.

In simple terms, it'll be privatising the profits, and socialising the losses

I'm happy as I'm heavily invested in banks that can now lend without credit risk. We need that picture of Oprah Winfrey shouting "Everyone gets a loan!"

Not worried that interest free, zero risk analysis loans from the government will drive out (out compete) risk based loans from a licensed bank that is hamstrung by banking regulations?

Not really, taxpayers are on the block for the hefty losses that scheme will incur. Remember the qualifying criteria is that you have to be declined by a bank so banks wouldn't lend on any basis to those businesses.

Extend and pretend boys!

12
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I work in this area, one of the hardest points here is we (at least since 2018) we are told, responsible lending, responsible lending, responsible lending, by the RBNZ, FMA, public, and then this occurs.

The criteria businesses have to meet with the bank now is,

1. Spin a good yarn

Approved for $10 to $50k

Makes my stomach flip and everyone else who goes near them.

I am not sure you need the yarn.\

It might be the worst idea since the US government said, 'Let's fund poor people into homes, who could be against poor people getting homes?"

You were born with a severe irony deficit.

I'm inclined to agree. There has been years of legislation and analysts work to ensure banks where scrupulous lenders building resilience subsequent to the GFC, even though they all made it through without the need for assistance.

Now we have U-turned in business banking within 2 months and are writing loans that wouldn't have been approved even prior to the GFC. We didn't learn much did we?

You've missing something so obvious.

Professional politicians have little or no idea on how to run businesses. What they do understand is increasing house prices enables people to lend and spend more. This masks/hides their business incompetence, but only for a period of time because infinite house price increases is unsustainable. Politicians are linked at the hip with banksters (and their lobbyists - which should be named and shamed), with some employed by them after parliament for reward and to keep their party going.

High tide was long ago; just masked by ever reducing interest rates and quantative easing to the tune of $185 trillion over the past 3 decades. Time to regulate lending on the basic need of housing, so the masses can have a roof over their head. This of course means banksters will have to do responsible lending, and most are sale people who don't understand sustainable business because its not in their business model.

More information just in from Treasury now, so the story's been updated substantially. 

Important changes.

Although I can't help but think that something so rushed the rules change on the very day of release cannot be but badly thought through.

So the government needs to stimulate small business - and can either cut tax rates, hand money over or lend it. Much more bangs for the taxpayer bucks by lending it, and much more efficient to do a limited amount through the tax system which “sort of” recapitalises businesses in the short term , and then leverage bank credit risk capacity to risk share with them. However, banks still won’t lend to zombie businesses - a 20% loss on new money and further loss on existing exposure will count that out.
Smart thinking Mr Robertson, you’ve chosen good options, but you need to turn up the volume on the tax channel, and step up demand by cutting gst.

Yes, I agree, so far - responses are reasonably measured and smart.

They're just lending the money they took from businesses in tax, back to businesses at zero percent interest. How about not taking the tax in the first place?

Cannot decide if we are witnessing the beginning of the end of faith in our currency. I've said previously the logical or historical endgame of rampant money creation, is devaluation.. leading to hyper-inflation.
But we have weathered these storms before and will again.. I just wish it would start raining.

A good currency devaluation would do us good. Nothing like grinding poverty to end the obesity epidemic and kick start innovation.

"Borrowers will no longer have to draw down on all existing facilities provided to them by their bank before applying for a loan under the scheme."

Somebody tell me why that is.
A customer must have been through the standard risk approval process to have an existing Undrawn Facility in place. If Corvid19 has changed those calculations materially, the facility will be withdrawn under notice. ( there'll be a Clause in the docs to say that somewhere).
So, why if a viable Undrawn Facility is still in place are taxpayers being substituted for some portion of the existing bank product?

(PS Afterthought. Is there a requirement for existing facilities to be drawn after APPROVAL has been granted under this taxpayer scheme, and before drawdown? That's the only thing I can imagine that makes sense "Use your other funds, first, then use ours after that ' but 'here's the Approval so you're ready to go')

I fail to see why property investment is excluded. I can understand not giving loans to buy an investment property, but surely they don’t mean an existing investment property producing rent, especially if it’s a commercial property. Since the introduction of GST existing commercial property is treated as a business in all respects. Like any other business it collects and pays the IRD the GST it collects from rent received, and is not subject to GST if bought or sold as its GST exempt also just like all business sales. A commercial property is a business that provides premises to other businesses and is effectively just another business supplying services. Has anybody got the answer? ( Lefties and Greenies excluded from answering).

This COL hates people that invest in property.
Our esteemed leader and Davidson has said that this virus BS is an opportunity to close the inequality gap in NZ!
So, anyone that owns property we want to screw as much as we can so that they have less, as it is unfair that some people have an easier life than others, that do nothing!
I believe there is a name for a regime that wants to have control over everyone and doesn’t want anyone to do anything to improve themselves

22
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The government is bailing out the real economy and productive businesses, not people like yourself who siphon money out of the real economy while producing zilch.

I would have thought that providing premises to businesses is very productive, or do you believe that all businesses should be held in the open air?

Great reply BD lol. Speechless is a newbie, he has no idea

13
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I'm not a newbie, I've been lurking on here rolling my eyes at your uneducated comments for years Yvil, just finally decided to start chipping in.

As to credentials, I asked you on another thread what your business experience consists of. I bootstrapped my way to top 1% income at 31 starting with $0. So feel free to argue my points, but don't roll up here all smug and arrogant and act like your debt bubble riding experience gives you some credibility that I don't have. My dues are well and truly paid.

Salty

12
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Haha, maybe so. Just gets a bit tedious responding to unearned smugness and arrogance from someone whose track record seems to amount to "bought first house before 2000."

Speechless, if you were so smart you would understand what your moniker means. Speechless means unable to speak (or comment in this case). Be true to your name

Popcorn.gif

Salty? We're not talking about the Treaty of Waitangi.

10
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That comment was directed towards residential, which is what The Man owns.

To be fair I do feel somewhat bad for some commercial landlords (although some of the bigger ones have publicly shown they are rats). I have probably been unfair towards you on some of my comments here so I apologise for that. You seem like a good sort even if we may not see eye to eye on a few things across the generational divide. I hope you can work together with your tenants to figure out a way to get through this.

But for those who chose to lever up and speculate on what should have been the homes of young Kiwis, my attitude is and will remain: let 'em burn.

The Man does own a commercial property in ChCh that is a large warehouse with offices.
Tenant fully paid up and hasn’t missed a day of operation, in fact say they have never been busier!
If you don’t think providing rental housing is productive and easy money, then you have no idea what you are commenting on!
How is providing tradies and buying product for your housing is not productive?
Damn sight safer than most other businesses as well!
Personally extremely happy with what our business model is currently as certainly have no worries whatsoever financially.

Your tenant must be WINZ

Food manufacturer that exports.
Solid as and been in business for a long time and will be into the future.

Property investors have been screwing everyone for decades pumping up the price of homes, pricing out young people and then telling them its because they didn't work hard enough or ate too much avocado on toast. They didn't seem to recognise the steadily dropping interest rates and money printing led to asset gains. Then when there was a suggestion of capital gains tax to claw some back, their screams could be heard in Antarctica!

Now you want to claim that the free ride you had was because you somehow are a great person who has "improved homself" by buying property and enjoying the free ride?

Oh the arrogance...

If you are going to suffer a loss in a housing downturn, stop eating avocado on toast, that will see you through.

Blobbles, we certainly won’t be losing anything in any downturn in property in ChCh.
Firstly as I have. Even saying for years, property investing is all about buying right and having positively geared property.
Our returns over all properties average around 9 to 10 per cent on what we paid for them.
Secondly, when we are laying just over 3% interest on borrowings now, it is not difficult to see that we are pretty well covered.
Finally we will never need to sell anything but I also don’t believe that ChCh prices will be dropping as it is a very stable market in NZ.
If anything what this will do is ensure that there will be more tenants around for awhile.

Lets start by leveling the playing field. You need to be paying 8% on any debt like most SME's pay on borrowings. Then we can discuss how amazing you are after that

11
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I already gave you the answer in another thread: most commercial property is structurally defunct as a business because the demand is never coming back due to technology and consumer behaviour changes.

Then please be so kind as to tell me where goods will be manufactured, stored, repaired, packed or transported is this new world order of technology you believe is our future?

In the same places they are now. It's not all commercial property. But a very significant chunk of commercial property. Presumably the logic is that viable businesses who still need commercial space for these purposes will use some of the loan to pay their landlords for what they need and can actually use. In that way landlords owning spaces *that can still actually be used by a tenant* will benefit.

I'm talking primarily about retail space and offices. Even so, I don't see how those being empty doesn't knock on to manufacturing, storage, repairing, packaging, transport spaces etc. There is a lot of space out there no longer fit for its intended use, so it's going to need to find another use, just as Airbnbs are now flooding onto the long term residential rental market.

It's not just the technological pressure though. The virus is in play for an indefinite period of time. If you own a movie theatre, what the hell are you supposed to do with it now? Event spaces? Conference rooms? None of these are viable if we can't have more than 15 people in the same room at once until there is a vaccine. It just doesn't make sense to bail out spaces that may have no function for an indefinite period of time.

You've got a lot to say for a newbie, shame you're not true to your moniker

You’re back peddling so fast, you could light a cigarette on the gears. While it’s true that some office and retail space will be less desirable, the easy answer to that is to convert office or retail to residential apartments. Most offices and retail come with toilets, kitchenettes, partitioning etc. So if it’s good enough to work all day and night in an office, why not sleep in it as well? In one fell swoop the housing crisis is solved. Now all we have to do is to get those twits in the Council to throw away the rule book and make progress rather than make work.

Where did I back pedal?

Yes, I'm also assuming there will be significant conversion to residential as well (although there was another conversation on here amongst people who know more about it than I do saying that's not super practical in many cases). But whether it's conversion to other commercial applications or conversion to residential, the point remains there will be huge long term demand destruction and everything will need to be significantly repriced. Remember there is already excess Airbnb supply being added to the residential market, so this hypothetical office-to-apartment supply will be added on top of that. Not to mention hotels and motels. I'm always open to being wrong so if there is something I'm missing here point it out to me.

But yes I can broadly agree with you with regards to cutting red tape to expedite that conversion to residential, that would be a positive outcome.

(Edited because I forget to finish a sentence.)

In the same places that many multiples of landlords cannot afford to keep empty I suppose? A tug of war between a landlord with an empty warehouse and companies that seek to utilise that space for productive enterprises. Are you suggesting Landlords will trump?

I'm assuming they mean one doesn't need to draw down/exhaust an overdraft facility with the bank. So what they're saying is you can keep that in place to use for normal operating expenses once you're opened up again - and use this facility to pay the fixed outgoings (rent etc.) that you incurred during the lock down/business closure.

Just my guess.

Because (1) the other facilities are more expensive (2) default on Govt backed loan may have no recall to Debtors other assets

I have an od facility at 8.5% or I can borrow on this scheme at 3%. Massive help to our cashflow, we lost 90% of our sales last month, this allows us to spread that hit over 2 - 3 years rather than one big hit.

"money for nothing and the chick for free" (again) U2

16
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That's Dire Straits, not U2;

https://www.youtube.com/watch?v=wTP2RUD_cL0

14
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Jenée, you are doing an amazing job on government/Parliament reporting during this crazy time. You'll never forget it for the rest of your life is my guess!

You seem to get articles up within minutes of the press conference closing. Yikes. It must be mad.

Agreed, it is crazy to read about a policy announcement and then a revisions/clarifications very shortly afterwards. It really conveys the sort of "make it up as we go along" that is prevailing within Treasury currently. You can see that we are spending ammunition at a high rate without asking what level of creative destruction is reasonably expected.

Talking to a medium business owner today he said he hadn't even had time to renegotiate contracts with all of his suppliers and landlord yet because he's been so busy dealing with other issues. There are months of work ahead of business owners to establish a new equilibrium, the shock still needs to be passed backwards throughout the whole economic system.

I wonder if this is also some help for the drought. When I was last speaking to my bank, she said all she was doing was reworking loans so there was an ability to buy stock feed. It getting pretty bad out there. I havnt seen store stock so cheap in a very long time. No grass or supplement going into winter for a lot of farmers. Also with Covid and the drought bringing a wrecking ball to timely meat processing, od limits will be stretched.
It came off the back of some really good pricing. Schedules up around $6.40 for beef and $9.00 for lamb before xmas. So going back in to buy store was eye watering. ODs would have been cleaned out, between that and not getting stock processed on time since new year. I bet banks were begging Robertson &co. It really has been a bad combo. Covid plus drought.

Isn't there huge moral hazard regarding farm lending here? Farms have not been affected by Covid in as much as they can keep going, but why now won't every bank sign up new farm loans, and all existing loans as they roll over, under the 80% taxpayer guarantee, as well as all their existing securities. They can't lose, and the taxpayer will end up bankrolling a lot of pre-Covid way over exposed/indebted farms, especially dairy, and the banks will have the perfect out to get those trouble loans off their books? The taxpayer will be 'rewarding' banks for some not so prudent lending over the last 15 years. What am I missing?

Firstly I read in there you had to be within your banking covenants in january. Previously troubled farmers would have been in bother well before then.
Secondly I have explained the markets in this new covid world have been a mess. Just as in many other businesses farmers are struggling to access their normal sales. Whether it be simply that all salesyards are shutdown, or noone is eating french racks these days. Meat chillers are full to the brim everywhere and meat processing has been at half capacity at the same time there is a record drought and nothing for stock to eat. So by the time you get stock away they and their price has shrunk.
It should all settle. And if everyone can access funds to get through with fert or bought feed, next season the export dollars should roll in. And thats what we all desperately need.

Hi Belle

I didn’t read the January covenants requirement: so long as that’s the case, I guess.

There’s so much loose cash and money being thrown around at the moment, however, the cost of the lockdown is going to be crippling for decades and generations to come.

And after the business loans legislation cock up, and untargetted lolly scramble of the wage subsidy, I have no confidence in this coalition to get much right.

Good luck with the drought.

Ok let's run with that one, if the international finance community catches on that we're lending at 0% interest to our businesses, won't that be a clear sign that there is minimal profit to be made on commercial lending in NZ and will that not scare away international investors and will that not precipitate a calamitous decline in the NZD purchasing power? We will get our inflation.
Additionally, will the government extend the taxpayer lending to FHBs? Perhaps a zero percent mortgage might keep property prices elevated.
We could just keep making it up as we go along.
I think getting out of NZDs would be good for a while.

I smell disaster!

In any cases, Ardern can keep economy going until the election by throwing money at it.
No politician will oppose hard to the giving free loan or money to people at large before the election, wrong policy or not.

We ultimately get what we deserve then, I suppose.

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See Party Policies here. Party Lists here.