Business Finance Guarantee Scheme - Loans for SMEs

Business Finance Guarantee Scheme - Loans for SMEs

-As advised by The Treasury

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:

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.