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Govt broadens the Small Business Cashflow Loan Scheme and extends the Business Finance Guarantee Scheme as businesses worry about accessing credit

Govt broadens the Small Business Cashflow Loan Scheme and extends the Business Finance Guarantee Scheme as businesses worry about accessing credit
Stuart Nash, Jacinda Ardern

The Government is broadening the eligibility criteria of the Small Business Cashflow Loan Scheme (SBCLS) in line with what it campaigned on pre-election and signalled last month.

It’s also extending the Business Finance Guarantee Scheme (BFGS) to June 2021.

Under the SBCLS, “viable” businesses can get unsecured, interest-free loans from the Government of up to $100,000 depending their size ($10,000 base loan plus $1800 for every full-time employee up to 50 employees).

To date, businesses have been able to get loans to cover operating costs. From February, they’ll be able to get loans to invest in new equipment and digital infrastructure as well.

Businesses established after April 1, 2020, which have existed for at least six months, will also become eligible for loans.

And businesses won’t have to demonstrate they’ve suffered as much of a loss to qualify for a loan.

Currently, businesses must have experienced a decline in actual or predicted revenue of at least 30% in any 30-day period from January to June 2020, compared with the same period in the previous year to qualify.

Under the new criteria, businesses that can demonstrate a drop in revenue of at least 30% because of Covid-19, over any 14-day period in the previous six months, compared with the same 14-day period a year ago, will qualify.

To date, 100,000 businesses have taken out loans totalling $1.6 billion.

Around 6,500 businesses have made $45.4 million of repayments.

Businesses that repay their loans will be able to apply for another one under the scheme.

Cabinet last month agreed to extend the scheme to December 31, 2023.

It also agreed to extend the interest-free period of loans from one year to two years. Loans are subject to 3% interest when the interest-free period expires. This interest is charged from the date the loan is drawn down.

Around 82% of loans have gone to firms with one to five employees. Around 92% have gone to firms with 10 or fewer staff.

Seventeen percent of loans have gone to businesses in construction. Accommodation, restaurants and cafes account for 12% of loans, those offering professional, scientific or technical services 10%, retail trade 9%, and manufacturing 7%.

Businesses worried about accessing credit

Minister for Small Business Stuart Nash said: “The decision to extend the interest-free loan scheme is designed to give confidence to our smallest businesses and keep up the momentum of recovery.”

ANZ’s latest Business Outlook Survey also confirms firms are struggling to secure credit from lenders.

Despite a major bounce-back in the headline business confidence figure, a net 40.1% of businesses had a negative view when it came to the ease of credit - a worse result from the 33.0% in November.

The value of bank lending to businesses has been declining all year. It was down $5.6 billion from October 2019 to October 2020 to $109.5 billion according to Reserve Bank data

Business Finance Guarantee Scheme extended as well

In addition to making these extensions to the SBCLS, the Government earlier in the week agreed to extend the BFGS.

Under this scheme, aimed at helping medium-sized businesses, firms can get taxpayer-underwritten loans from ANZ, ASB, BNZ, Heartland Bank, Kiwibank, TSB, Bank of China, Westpac or Nelson Building Society.

The 80% underwrite is there to shift the risk from banks to taxpayers to prevent banks becoming overly risk-averse.

Lenders can determine how much they lend to a business and the term of the loan. The maximum a bank can lend is $5 million over five years, and the maximum a non-bank can lend is $3 million over five years.

As at December 8, lenders had approved $828 million of loans to 1566 borrowers.

The eligibility criteria of the BFGS has been extended a few times since its launch. 

See this Treasury web page for more on the BFGS, and this IRD web page for more on the SBCLS.

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The value of bank lending to businesses has been declining all year. It was down $5.6 billion from October 2019 to October 2020 to $109.5 billion according to Reserve Bank data.

Banks are exercising liquidity preference, reflected in an increasing floating interest rate government deposit asset crowding out high RWA lending to GDP qualifying enterprises. The RBNZ's QE programme, is in effect picking economic winners.

Asset collateralised, non-GDP qualifying residential property, bank lending is also booming due to well defined factors:

Banks extending 60 % of their lending to one third of already wealthy households to speculate in the residential property market because the RBNZ offers them an RWA capital reduction incentive, to do so.

And this:
RBNZ cutting OCR in half five times since July 2008, causing the rich to capitalise rising discounted present values of future asset cash flows.

To me this reads more that govt is signaling it cares about small businesses rather than it is actually going to do anything to help.

Small business is having a hard time getting finance from banks. Loans that were extended by the bank of the IRD were for Covid difficulties. If a business needs a $30,000 loan at reasonable rates as finance to pay rates and wages while that business builds back it's customer base and balance sheet then this govt signaling does not help.

If the govt were to make short term finance available from the Bank of the IRD to help business recover from the Covid credit crunch of say loans up to $50,000 then that would help business now and would help the flow of credit in the general economy greatly.

Small business is having to draw out the payment of creditors to stay afloat. Bank finance at reasonable rates without bureaucratic hurdles is not available. So the inevitable result is that people are choosing to be very cautious with any new outgoings and the velocity of credit within the real economy is slowing.

A counterbalance to this was the action in the speculative economy, notably property. Now that is being dampened down because of the fears about wealth disparity. So it means everything is at risk of being dampened down.

The $NZ is way up. Business lending is down. The brief splurge in lending for housing is being throttled down. If you choke off any avenue for growth of credit then economic growth is going to be difficult.

The govt hasn't learnt it's lesson from the past year. The lesson is that simple, practical fiscal action from the govt works. Complicated, stingy, bureaucratic schemes don't work. Unless the aim is to say we tried to do something and it's not our fault that our made to fail schemes didn't work.

The wage subsidy worked. The Bank of IRD loans worked. The automatic stabilisers (dole and pensions) kicked in as they should do. The anti Covid measures and the return of consumer confidence worked.

Not much else that the govt tried worked, but the over complicated, third party operator schemes that didn't work are the ones that the govt is going for. Why? Because this is a neoliberal govt that doesn't want to have to spend money or to shoulder the responsibility of being an engine for growth.

Hasn't business. big and small, always said that if Govt would just keep out of it and stop meddling that the market will sort things out. ?

But they (govt) interfered with market by stopping it trading for months then cutting off its customer base!
We need a war war to get back to what is real and of worth... clean sweep! This postmodern world is becoming more and more detached from reality! People think throwing more and more money into system is good, when in fact all it does is enrich the asset holders and speculators.... who will insist the pain of correction be shared even though they took all the profits.

It struck me when listening to John Key on the radio declaring it perfectly reasonable that the taxpayer pick up the tab when the market fails because the market has failed and that's when the taxpayer should pick up the tab, coupled with his suggesting that the market will adequately address climate change because "look, at the end of the day some people are buying organic produce", that...well...sometimes nominal "free market capitalists" can be simple creatures who don't think too deeply on issues. It seems more steeped in a base level of entitlement of profits vs. losses than real consideration of cause and effect, responsibility etc.

Vote Jacinda for world's most punchable face of 2021!

Totally inappropriate comment.

wow, this is out of hand.. the homelessness is going to be out of this world.

Whats your point? property prices increased 20% last year. This is all that matters. Get with the programme

You're a very impertinent commenter.

Indeed. You can't make an investment property omelette without breaking a few eggs.

We have very low rates of elder poverty and very high rates of child poverty.

The Aussies tried something similar but quickly rescinded when they realise how many dodgy businesses use it to scam their taxpayers millions of dollars. On top of that, their economists criticised them for propping up a zombie economy that regularly requiring more than it could ever produce. So what's the safeguard here to stop people who fake losses, are irreversibly bankrupted or create another 1,000 imaginary employees? Try skipping your income tax payments and see how much interest Jessy's gonna charge you in interests and fines.

Yes & No. Nothing grieves the heat of man quite like his neighbour prospering while he struggles.

I believe you're irritated seeing people prosper through fraud, misrepresentations and creative accounting .. people/businesses which otherwise would be down-the-road [I genuine idiom there].

It's best not to pay it too much thought .. others already give it enough. What I COULD find grievous is the mass pumping of the M1 money supply via assets. Obviously this lowers the value of our money .. especially if you want to buy assets.

I've recommended on here people should buy Bitcoin, not because I think it will make them insanely wealthy (which it probably will do), rather because it will protect them from increasing asset prices aka the devaluing on the NZD. Bitcoin is a crypto currency/store-of-value, but it's also an Algorithmic, Austrian, Monetary Policy using an unstoppable BitTorrent-Like-Distribution. It's an deflationary currency.

The RBNZ should actually buy 70,000 Bitcoin while it's still cheap. Would cost them less than 2 Billion. Governments will have to buy it eventually. It's actually negligent for NZ to NOT buy BTC - at worse a security risk!

Even if the treasury/RBNZ/3-letter-agentcies mark it as a gold purchase/sale .. obviously buy it off miners for a premium .. heck !! go full Iran and start mining it - great excuse to develop a geothermal energy plant (it would fund itself).

Could put a bitcoin mine down near Manapouri. Cheap electricity and a bit of cold weather to help.