Banks are ready to start writing government-guaranteed loans for businesses affected by COVID-19.
The Government on March 20 announced it had agreed to underwrite 80% of individual bank loans to eligible firms.
This means that in the event of a default, 80% of the loss will be borne by the Government/taxpayers and 20% by the bank.
The Government is taking on the bulk of the credit risk to encourage banks to keep lending.
While loans will be written according to banks’ lending criteria, Finance Minister Grant Robertson said the risk-sharing arrangement “implies a higher tolerance of risk than you might normally see from the banks, because obviously we’re in a time when their normal risk weightings probably aren’t appropriate”.
The total value of loans the “Business Finance Guarantee Scheme” will cover is $6.25 billion.
To be eligible, businesses must be New Zealand-based and have had turnovers of between $250,000 and $80 million at the end of the 2019 financial year.
The loan can only be used to meet urgent liquidity or bridging financing needs due to COVID-19 disruption.
Loan proceeds can't be used to cover capital assets/projects, distribution of dividends, on-lending outside the borrower's group, or to refinance existing debt unless it was advanced on or after March 16, 2020.
The maximum amount banks can lend to each business under the scheme is $500,000.
The maximum term for each loan is three years. Different banks will have different rules regarding terms.
The scheme only covers new lending.
Property development, property investment and agriculture are among the businesses excluded.
Borrowers can only take out a loan under the scheme if they've used their bank's existing facilities (other than credit cards, trade finance and other types of finance specified by banks).
Participating banks include ANZ, ASB, BNZ, Heartland Bank, HSBC, Kiwibank, SBS Bank, TSB and Westpac.
'Tough conversations' ahead
New Zealand Bankers' Association CEO Roger Beaumont said banks' credit assessments typically take 10 working days.
ANZ's Mark Hiddleston said: “To make the assessments quicker we ask that when we have those conversations with customers they come with a plan or some thinking about how they intend to last the crisis and get the business back on its feet afterwards.”
Westpac's Simon Power said: “As with any business lending, we still need to understand if each customer will be able to meet their commitments. We don’t want to place people under even more financial stress by lending to customers that don’t have a viable way forward.”
ASB's Vittoria Shortt made a similar point, adding: "There will be some tough conversations ahead but that is our job as responsible lenders."
Kiwibank's Steve Jurkovich said: “My message to businesses is talk to us early. Even if you think you’ve got sufficient cash flow to see you through the initial shock of Covid-19, the financial impacts could be felt for much longer, and we are committed to doing what we can to help you get through this.”
See this page for more info.
Here are the scheme's rules, as summarised by ANZ:
- Had turnover of between NZD 250,000 and NZD 80,000,0000 at the end of its 2019 financial year.
- Is a New Zealand-based business (the Government may define this – please contact us if you’re unsure whether this applies to you).
- Isn’t engaged, as material part of its business, in an excluded activity (see below).
- In assessing the lending, ANZ will need to look at the impact of COVID-19 on your business operations, its trading position before the COVID-19 crisis and your plan for when the country returns to something resembling normality.
- Can only be used to meet urgent liquidity or bridging financing needs due to disruption COVID-19 has caused your business and not for any excluded purpose (see below).
- Cannot be drawn or accessed before using any existing ANZ facilities (other than a credit card, trade finance loan, or other loan that we let you know is excluded).
Excluded activity means one or more of the following:
- Property development and property investment
- Being a local authority, a council-controlled organisation or a council organisation for the purposes of the Local Government Act 2002
- Manufacturing or testing cluster munitions, anti-personnel mines, or nuclear explosive devices (NEDs)
- Manufacturing tobacco
- Processing whale meat
- Manufacturing recreational cannabis
- Manufacturing civilian automatic and semi-automatic firearms, magazines, or parts
- Agriculture (which doesn’t include horticulture, viticulture, aquaculture, or services to agriculture)
- Any other activity the Crown notifies to ANZ
Excluded purpose means one or more of the following:
- Capital assets or projects, other than business as usual expenditure which does not exceed 5% of the principal amount of the supported loan.
- Dividends to be distributed outside the applicant’s guaranteeing group.
- On-lending outside the applicant’s guaranteeing group.
- Refinance of an existing loan or facility with ANZ or another organisation (unless we agree in writing).
- Any purpose related to an excluded activity.