What you need to know about post-COVID cashflow loans
COVID-19 has hit business hard. During the lockdown, many businesses made little or no income, and even under the looser rules of level two, business owners are dealing with restrictions on customer numbers, the expense of hygiene and contactless technology, and a wary public. Things are feeling more normal in many ways, but businesses will be dealing with the fallout for a long while yet.
That’s why, along with the wage subsidy scheme, the Government has introduced a Business Finance Guarantee for small-to-medium businesses. The scheme is designed to provide a cash-flow boost to businesses struggling in the wake of COVID-19. It’s about supporting business, with the flow-on effect of protecting jobs and boosting the economy. The loans are administered by existing banks, but the Government will act as a guarantor for the bulk of the loan, taking the burden off lenders.
If you’re finding it difficult to pay your staff and keep your business going at the moment, a small business loan could help you stay on your feet.
Here’s what you need to know:
Unlike the wage subsidy, this scheme is about short-term loans – so the money will need to be paid back and you will be charged interest in the meantime. Banks and other lenders are taking applications, approving the loans and managing repayments.
As with a standard business loan, your business will need to provide security in the form of property or other assets to match the value of the loan. Unlike other loans, the Government will act as a guarantor for 80% of the value. This means, if you fail to make repayments and the bank isn’t able to recoup the loan amount by selling your assets, the Government will step in to repay the difference.
The Government has earmarked a total of $6.25 billion for the scheme – and it’s first in, first served, so if your business needs help it’s better to get in early.
Made for small, NZ-based businesses
The loan scheme is designed to support New Zealand-based, small-to-medium businesses, not huge corporations. If your business has under 50 employees and an annual turnover of less than $80 million, you may be eligible.
If you have existing business loans, you won’t necessarily be excluded – but the bank will want to see that you’re capable of making repayments on all your debts, as well as a new loan.
Some types of business are excluded from the scheme, including property development, weapons manufacturing or tobacco production.
The gritty details
Under the Business Finance Guarantee, you can borrow up to $500,000 for a term of up to three years. Some banks are structuring the loans as revolving credit accounts, which means you only use the money as you need it, and you only pay interest on the money that has been drawn down.
This scheme was put in place to help businesses deal with the fallout of COVID-19, and covers operating costs like rent, day-to-day expenses, equipment, materials or new products. The money shouldn’t be used to service existing debt or fund new projects.
Applying for a business support loan
Although the Government is acting as a guarantor for the Business Finance Guarantee scheme, the loans are being managed by banks so applications are much like any business loan. You’ll usually need to provide full documentation of your financial situation including current financial statements, an IRD account summary and cash-flow forecasts.
The bank may ask about your pre-COVID position, how you’ve been affected by the crisis and your plans for the future. They’ll want to know that your business is viable and that you’ll be able to repay the loan within the three-year timeframe – that’s why cash-flow forecasting and financial statements are key. Your accountant or financial adviser may also be able to provide an assessment of your viability.
Get advice from an expert
The Business Finance Guarantee scheme could be the difference between survival and failure for some businesses, but that doesn’t mean it’s right for everyone. Taking on new debt during a downturn has its risks, so it’s essential to examine your financial situation thoroughly before you make the decision.
Before you apply, talk to a financial adviser about your current and future finances – if a small business loan is right for you, you’ll get help to sort out your application as well.
Book a consultation with a Global Finance adviser now.
**These are general guidelines and are by no means a reflection of bank or lending policies