24 Mar The Business Finance Guarantee scheme
The Business Finance Guarantee 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. The scheme is intended for small and medium-sized businesses, and its stated aim is to protect jobs and support the 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.
Finance Minister Grant Robertson said, “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”.
The burning question for business owners is, “am I eligible for a loan under the scheme?”
To be eligible a business must:
- 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
Finally, the loan cannot be used to fund:
- Capital assets/projects other than business as usual expenditure which does not exceed 5% of the principal amount of the loan
- Dividends to be distributed outside the Borrower’s guaranteeing group
- Re-financing existing debt advanced before March 16th
- On-lending outside the Borrower’s guaranteeing group, or
- 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.
How this is implemented in practice is likely to vary from Bank to Bank.
For business’s 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 your Bank’s repayment terms, interest rates and other customary commercial loan terms. Therefore, 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 essential to have good legal and accounting advice before making an application and entering into any loan agreement under the scheme.
If you need advice about this issue then call one of the Barter Law team now.