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Revenue and Small Business Minister Stuart Nash seeking advice on extending the one month timeframe for loan applications to the Small Business Cashflow Loan Scheme

Revenue and Small Business Minister Stuart Nash seeking advice on extending the one month timeframe for loan applications to the Small Business Cashflow Loan Scheme

Revenue and Small Business Minister Stuart Nash says he's seeking advice on extending the one month timeframe for loan applications to the Small Business Cashflow Loan Scheme as loan applications near $1 billion.

Nash says more than 55,000 businesses have applied for unsecured loans valued at $960 million from the Inland Revenue Department (IRD) administered loan scheme with 95% approved. The average loan is about $17,300, Nash says, with 90% of applications from firms with 10 or fewer staff. IRD started taking loan applications for a period of one month on May 12.

"Applications are due by 12 June but I am seeking advice on extending the deadline given the substantial demand for the loans," Nash says.

The Government announced the loan scheme on May 1. It offers firms that employ 50 or fewer full-time staff loans of up to $100,000. At the time Finance Minister Grant Robertson said the loan scheme was necessary because, in a COVID-19 hit world, banks weren't meeting businesses' needs nor the Government's expectations. 

Businesses can borrow $10,000 each through the Small Business Cashflow Loan Scheme, with the ability to increase the loan size by $1800 for every full-time employee the firm has. The loans will be interest free if they are repaid within a year. Thereafter an interest rate of 3% will be charged for a maximum term of five years. Repayments won’t be required for the first two years.

Nash says the most common types of businesses applying for loans are those from the construction industry, accommodation providers, professional firms, and retailers. He says 88% of those seeking loans have also received support from the Wage Subsidy.

“Cash flow is crucial to kick-starting the economic recovery for our small businesses. More than 55,000 businesses have applied for around $960 million in interest-free loans. We expect to pass the billion-dollar mark within the next day or so. Around 95% have already been approved and cash usually arrives in bank accounts within five days," says Nash.

“The interest-free loans have come at just the right time. This is much-needed working capital for small businesses who for a variety of reasons have not been able to approach banks or investors for support. I have received positive feedback about how easy it is to apply online and how fast the loan has arrived." 

He says about 45% of applications come from firms with just one employee, 33% have between two and five staff; 12% have six to 10 staff; and 7% have 11 to 20 staff. And about half of the businesses taking out loans have been trading for more than five years.

“Provincial businesses are making good use of the government lending. Tauranga businesses account for 2,528 applications, there are 1,575 from Palmerston North, 1,482 from Whangarei, 1,240 from Nelson, and 1,181 applications from Napier businesses," says Nash.

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How much will be paid back?

My guesstimate is the taxpayer will be getting about 40 cents in the dollar back.

IMHO the govt should have gone down the big infrastructure projects route. At lease these offer a non negative ROR. The East West Link could have
been revisited. There is already a resource consent in place for this, so you just got to get the property acquisitions done then you can start digging

Perhaps Interest (ears on, eds?) should run a Sweep about the cents-in-the-dollar that this scheme will end up being repaid.

They have a 95% approval rate so I guess they must be holding their nose with one hand and rubber stamping with the other.

If it is secure debt the IRD can collect off your income sources with statutory deductions, unless you go overseas and never return you are caught for life.

the economy is not just infrastructure projects and until people realise that and boosting gdp through this one means is not effective.

It can collect off your business with statutory declarations however if your company goes bust the then the IRD will get zilch. I imagine quite a few of these companies will go broke in the next couple of years. Presumably the IRD then sits as an unsecured creditor once the companies in liquidation. From this process I assure you they will get 0 cents in the dollar every time.

Infrastrsture projects have a simplistic, easily calculatable NPV or IRR. keynesian economics 101 says this is the correct approach to stimulate an economy. The govt should be throwing everything & the kitchen sink at all major infrastructure projects that have a viable business case.

Yes, although the government voice that well worn excuse about a lack of 'shovel ready' projects.