Small Business Loans
The Government have announced small business loans to help businesses get through the coming weeks and months. Details are scarce – it was announced in a rush, and applications for the loan aren’t open until 12 May at the earliest.
What we know now, is that the horrifically named Small Business Cashflow Scheme (“SBCS”) will give funding to small and medium sized businesses.
The loans are capped at a maximum of $10,000 each, plus $1,800 on top per full time employee. They are interest free for the first 12 months, with interest charged at 3% after the interest free period. No repayments are required in the first two years, with full repayment required within five years.
To qualify, you must have a 30% reduction in turnover and be a viable business post Covid (understandably, they don’t want to lend to non-viable businesses). These are the same criteria as for the wage subsidy.
The trap for many with these loans is that they must be used for operating costs. So, you can’t use them to pay wages (already covered by the wage subsidy), and can’t use them to pay existing debt (which presumably would include outstanding creditor payments). The devil will be in the detail with these rules when the final structure of the SBCS is released.
These loans are unsecured, so if the business ultimately fails then there is no recourse on shareholders. It’s important to note though that there are mechanisms for the Government to recover the funds if the business wasn’t viable initially, or if the loan is spent inappropriately.
The largest issue with the SBCS is for businesses who don’t have a 30% reduction in turnover in the right period. For example if you had work in the pipeline for May and June which still come through then you’re not entitled to the loan. You may though have a significant reduction in sales for July and August (due to you not being out selling for a couple of months). This, as it stands today, mean you miss out on the SBCS and the wage subsidy.
To find out how to get the SBCS for your business keep an eye on this page on the IRD. There should be more information available in the coming days.
Otherwise, reach out to the team and we’ll let you know as soon as more information comes to hand.