Business Finance Guarantee loans available through participating banks can help small and medium businesses access credit for cashflow, capital assets and projects related to, responding to, or recovering from the impacts of COVID-19.
The scheme supports the provision of bank loans to viable businesses. It encourages banks to lend where otherwise they may not by the Government taking on the default risk up to 80% of the loan. Borrowers are still liable and must pay back the debt, with interest, in the usual way.
Scheme-related announcements made by the Government can be found on the Beehive website. Links to those announcements are provided under External links, below.
What the scheme provides
Approved banks can provide a term loan or revolving credit facility if your business (which can be a company, sole trader, partnership or trust) needs credit for cashflow, capital assets and projects related to responding to, or recovering from, the impacts of COVID-19.
Participating banks are: ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac. Depending on your circumstances, you may be able to access credit up to:
- A scheme maximum amount of $5 million under one or more loans (your bank will determine your maximum loan amount within this amount)
- A scheme maximum loan term of five years (your bank will determine maximum loan term)
The scheme is open for applications until 31 December 2020.
It is important to be aware that the Government guarantee does not limit your business’s liability for the debt. If your business defaults on a scheme loan, your bank will follow its normal process to recover the debt. If the debt can’t be recovered, the bank can claim 80% of any shortfall from the Crown. This is to encourage banks to lend where otherwise they might not.
Talk to your bank to discuss your financing needs and if you are eligible for credit using the Business Finance Guarantee.
The Small Business Cashflow Scheme generally provides smaller, low-cost loans to businesses and sole traders. Information on this, and other supports including tax measures administered by Inland Revenue, is available on the Inland Revenue website: ird.govt.nz
How the Business Finance Guarantee scheme works
Your business doesn’t have to draw down existing facilities before applying for a Business Finance Guarantee Scheme loan.
As part of your bank’s approval process for a loan under the scheme, your bank decides:
- The loan amount (up to $5 million under one or more loans), term (up to five years) and the interest rate
- Whether you need to provide documents that show your business can afford to repay the debt, such as a cashflow forecast, business plan and details of assets
- Whether it will rely on existing or require new security and guarantees to support the debt (this is not a Government requirement)
- Whether it will approve or decline a loan under the scheme.
The loan agreement is between your business and your bank, so your business is liable and must pay the debt back, with interest, in the usual way.
Am I eligible for the Business Finance Guarantee Scheme?
Your bank will assess if your business is eligible and apply its normal lending criteria and processes, modified to consider the uncertainty of the economic conditions caused by COVID-19. This will include the ability of your business to repay any credit advanced using the Business Finance Guarantee Scheme.
To be generally eligible to apply for bank credit using the Business Finance Guarantee Scheme your business must:
- Be a New Zealand based business
- Have annual revenue of $200 million or less in its most recently completed financial year
- Not be on your bank’s credit watchlist as at 31 January 2020 (for retail customers) or 30 September 2019 (for non-retail customers)
- Not be a residential or commercial property developer or investor, or a local authority or council-controlled organisation
Business Finance Guarantee Scheme credit cannot be used to fund:
- Dividends outside of your business and any guarantors
- On-lending outside of your business and any guarantors
- Re-financing or repaying more than 20% of your business’s existing debt. Calculation of the 20% refinancing limit excludes, for instance:
- an existing loan advanced on or after 16 March 2020
- loans or facilities that mature on or before 31 December 2020
- An excluded activity, which is:
- The manufacture of cluster munitions, anti-personnel mines, tobacco, civilian automatic and semi-automatic firearms, magazines or parts
- The manufacture or testing of nuclear explosive devices
- The manufacture or distribution of recreational cannabis
- The processing of whale meat
- Any activity which is illegal in New Zealand.
Business Finance Guarantee Scheme: Frequently Asked Questions
Is the Business Finance Guarantee Scheme a grant?
No. The scheme supports the provision of new loans to businesses through a participating bank. Any loans will need to be repaid with interest, in the usual way.
When will the scheme be available?
Customers can apply to the banks now. Details are on each individual banks’ website. The scheme is open for applications until 31 December 2020.
Can I defer payments?
The repayment schedule and commercial terms will need to be agreed with your bank. Your bank will clearly explain to you the repayment terms for these loans.
How do I apply?
Talk to your bank to discuss your financing needs. They will advise whether your financing can be supported under the scheme. Details are on the banks’ websites.
Who decides if my business qualifies for the loan?
Your bank will decide whether you can access finance under the scheme. To see if you qualify for a loan, your bank will follow its normal credit assessment process, modified to enable the bank to give effect to the scheme and to allow the bank to look through the economic cycle to take account of the uncertainty of the current economic conditions caused by COVID-19.
How much can I borrow?
You can borrow as one loan, or under a number of loans, up to a maximum of $5 million. However, the maximum amount your bank is prepared to lend to you will be determined by your bank.
What can loans be used for?
The loans are intended to provide for businesses’ current and up-coming operating cashflow needs, including things like rent and staff expenses, and capital assets and projects related to, responding to, and recovering from the impacts of COVID-19. See also: What will the loans not fund? below.
What are the interest rates for the loans?
Interest rates will be determined by the banks under their normal lending criteria.
What is the criteria for the loan?
Loans will be provided by banks to businesses that have finance requirements caused by disruption to business as a result of COVID-19. See also: What will the loans not fund?
Is the Government guaranteeing the loan?
No. You may need to provide security for the loan as you would normally. The Government and participating banks have agreed to share the risk in case of default only.
What kind of security do I need to provide for the loan?
While banks remain in control of their own lending decisions and may have their own requirements, there is no Government expectation or requirement that lending requires a general security agreement or personal guarantee.
If the Government is guaranteeing the loan, why do I need to provide security?
Banks make their own lending decisions, including their own lending requirements which may include security or a guarantee. The Government guarantee only applies to 80% of any shortfall the bank has, after the bank has followed its normal process to recover the debt in the event of a default by the borrower.
Can I have both a Small Business Cashflow loan and a Business Finance Guarantee Scheme loan?
Yes. The schemes are not exclusive but businesses should evaluate each scheme against their specific needs. The Government has funded specialist consultancy support services to provide advice to businesses who need it. You can use the Boost tool to find out what services are available in your region: Kiwi Business Boost
You can also find more information on the range of supports available to businesses here on the Treasury website: COVID-19 economic response measures
Can I put the Scheme loan funds into my business's overdraft account?
Yes. The bank can only cancel or permanently reduce your overdraft limit by an amount that is up to 20% of all your existing business indebtedness to the bank.
Amounts owing under other loans and facilities that are in excess of agreed limits are not included in the calculation of the 20% refinancing limit.
How long do I have to repay the loan?
Scheme loans are limited to a maximum term of five years. However, the exact terms of individual loans will be determined by each bank.
What happens if I am unable to repay the loan?
Borrowers are fully responsible for repaying the loans under the scheme. If Borrowers default on payments, banks will follow their usual default processes.
Which banks are participating?
All New Zealand registered banks are eligible to apply to join the scheme. Banks currently participating include ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac.
Can I apply directly to the Government for a loan?
No. Applications for a loan under the scheme must be made to a bank that is participating in the scheme.
What if my bank declines my application – where else can I get support?
Government has introduced a range of measures to support businesses and individuals. More information on support available is available here on the Treasury website: COVID-19 economic response measures
What is the time period for applying for a Scheme loan?
Up until 31 December 2020.
If a borrower defaults, how much of the loan amount is paid to the banks?
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 process to recover the debt in default.
What is a New Zealand based business?
A New Zealand based business is a business carried out by:
- an individual or a company that is resident in New Zealand for the purposes of the Income Tax Act 2007; or
- a company or partnership (including a limited partnership) or trustees of a trust (in each case whether or not formed or incorporated in New Zealand), the relevant entity or body of persons:
- is or are resident in New Zealand for the purposes of the Income Tax Act 2007; or
- carry or carries on business in New Zealand through a fixed or permanent place of business in New Zealand and will file a New Zealand income tax return in respect of that business.
How do I know if my business is a retail or non-retail customer for the watchlist dates?
To work out which watchlist date applies to your business, ask your bank whether you are a retail customer (some banks call this a relationship customer) or a non-retail customer (some banks call this a non-relationship customer).
How does the Government ensure banks are complying with the terms?
The Treasury has oversight of participating banks’ compliance through a robust monitoring and reporting process.