Business Finance Guarantee loans 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 scheme loans to viable businesses. It encourages banks and non-bank deposit takers, like Nelson Building Society, to lend where otherwise they may not by the Government taking up to 80% of the loan’s default risk. Borrowers are still liable and must pay back the debt, with interest, in the usual way.
What the scheme provides
A term loan or revolving credit facility may be available 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.
All New Zealand registered banks and non-bank deposit takers (non-banks) are eligible to apply to join the scheme. Current participants are:
- Banks: ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac.
- Non-banks: Nelson Building Society.
Depending on your circumstances, you may be able to access credit from either a participating bank or a non-bank, but not both.
If you borrow from a bank, it will determine the amount you can borrow and the length of the term, under one or more scheme loans up to a maximum of:
- $5 million, five years
If you borrow from a non-bank, it will determine the amount you can borrow and the length of the term, under one or more scheme loans up to a maximum of:
- $3 million, five years
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’ liability for the debt. If your business defaults on a scheme loan, the lender will follow its default processes to recover the debt. They can claim from the Crown 80% of the defaulted scheme loan debt not recovered. This is to encourage them to lend where otherwise they might not.
Talk to your lender to discuss your financing needs and whether you are eligible for credit using the Business Finance Guarantee. A copy of the deed including Scheme details is available here: Deed of Indemnity in relation to the Business Finance Guarantee Scheme
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 the approval process for a scheme loan, your lender decides the:
- Amount and term, up to the scheme maximum
- 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 the lender, 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?
The lender will assess if your business is eligible and apply its lending criteria and processes, modified to give effect to the scheme and to allow them to look through the economic cycle to take account of the uncertain 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 eligible to apply for credit using the Business Finance Guarantee Scheme your business must:
- Be a New Zealand based business
- Not be a residential or commercial property developer or investor, or a local authority or council-controlled organisation.
- If borrowing from a bank:
- Have annual revenue of $200 million or less in the most recently completed financial year
- Not be on its credit watchlist as at 31 January 2020 (for retail customers) or 30 September 2019 (for non-retail customers). Contact your bank to work out which watchlist applies to your situation.
- If borrowing from a non-bank:
- Have annual revenue of $50 million or less in the most recently completed financial year
- Not be on its credit watchlist as 60 days or more in arrears.
Business Finance Guarantee Scheme credit cannot be used to fund:
- Dividends or on-lending (but can fund dividends or on-lending to the borrower and each person, if any, who has guaranteed the borrower's obligations to the lender)
- Refinancing of amounts owing in excess of the agreed limits under other loans and facilities with your bank or non-bank
- Re-financing or repaying more than 20% of your business’ existing debt. The following is not included in the 20% refinancing limit:
- an existing loan advanced on or after 16 March 2020 – this ensures businesses who took a loan just prior to the scheme being made available by banks were able to access it
- loans or facilities that mature on or before 31 December 2020
- scheme loan funds put into your businesses’ overdraft account, except to the extent the overdraft limit is cancelled or permanently reduced
- up to 31 December 2020, the refinancing of a scheme loan entered into before 20 August 2020, to reflect the recent scheme changes.
- 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 loans to businesses through participating banks and non-banks. Scheme loans will need to be repaid with interest, in the usual way.
When will the scheme be available?
Businesses can apply to the participating banks and non-banks now. Details are on their websites. 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 the lender. They will clearly explain to you the repayment terms for these loans.
How do I apply?
Talk to your lender to discuss your financing needs. They will advise whether your financing can be supported under the scheme. Details are on their websites.
Who decides if my business qualifies for the loan?
The lender decides whether you can access finance under the scheme. To see if you qualify, it will follow its credit assessment process, modified to give effect to the scheme and to allow them to look through the economic cycle to take account of the uncertain economic conditions caused by COVID-19. They can lend outside of their normal lending criteria.
How much can I borrow?
Depending on your circumstances, you may be able to access credit from either a participating bank or a participating non-bank, but not both. You can borrow as one loan, or under a number of loans, up to the maximum scheme loan amount. However, the maximum amount the lender is prepared to lend to you will be determined by them.
What can loans be used for?
Scheme 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 or recovering from the impacts of COVID-19. See below: What will the loans not fund?
What are the interest rates for the loans?
The interest rate will be determined by the lender under its lending criteria, modified to give effect to the scheme and to allow them to look through the economic cycle to take account of the uncertain economic conditions caused by COVID-19.
What are the criteria for the loan?
Loans can be provided to businesses that require finance related to, responding to or recovering from the impacts of COVID-19. See also: What will the loans not fund?
Is the Government guaranteeing the loan?
No. The Government and the providers have agreed to share the risk only in the case of default, that is, if the scheme loan is not repaid as required. You may need to provide security for the scheme loan, although this is not a Government requirement.
What kind of security do I need to provide for the loan?
While the banks and non-banks remain in control of their own lending decisions and may have their own requirements, there is no Government expectation or requirement that the lending requires a general security agreement or personal guarantee.
If the Government is guaranteeing the loan, why do I need to provide security?
The banks and non-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 on a defaulted scheme loan if the debt is not repaid as required.
If my business defaults on a scheme loan, what happens?
If your business defaults on a scheme loan, the lender must take action that it considers commercially reasonable to recover the debt. They can still make a claim to the Crown for 80% of the shortfall even if they have agreed to write off, cancel or not recover the scheme loan debt and/or any other indebtedness.
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 lender can only cancel or permanently reduce your overdraft limit by an amount that is up to 20% of all your existing business indebtedness with them. Amounts owing in excess of agreed limits under other loans and facilities with them cannot be refinanced using a scheme loan.
Can my existing scheme loan be changed to take account of the recent changes to the scheme?
If your scheme loan was entered into before 20 August 2020, then up until 31 December 2020, your bank may agree to change it to reflect the recent scheme changes. These changes include that:
- The maximum amount under one or more loans has increased from $500,000 to $5 million
- The maximum term under one or more loans has increased from three years to five years
- A scheme loan can now also be used for cashflow, capital assets and projects related to, responding to or recovering from the impacts of COVID-19.
It is up to the bank to decide if it will change your scheme loan. If it does agree, then the existing scheme loan amount is not included in 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 lender will determine the exact terms of individual loans.
What happens if I am unable to repay the loan?
Borrowers are fully responsible for repaying the scheme loans. If a borrower defaults, the lender will follow its default processes to recover the debt.
Can I apply directly to the Government for a loan?
No. Applications for a scheme loan must be made to a bank or non-bank that is participating in the scheme.
What if my application is declined – 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 by the Crown?
The Crown will pay 80% of any loss the lender incurs on a defaulted scheme loan, after they have completed their default processes to recover the debt.
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 banks' 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 the banks and non-banks are complying with the terms?
The Treasury has oversight of their compliance through a robust monitoring and reporting process.