Interest-free loans for firms
Small businesses struggling with the coronavirus pandemic will be able to get interest-free and low-interest loans of up to $100,000 under a new relief scheme announced by the Government.
Finance Minister Grant Robertson said it had become clear that the support banks were providing to small and medium-sized businesses was ‘‘not meeting their needs nor our expectations as a Government’’.
The ‘‘small business cashflow scheme’’ will be administered by Inland Revenue and will be available to firms employing 50 staff or fewer, with applications opening on May 12.
The loans will be intended to meet businesses’ ‘‘immediate cashflow needs’’ and to meet their fixed costs. The most companies can borrow will be $10,000, plus an additional $1800 for each full-time employee they have.
The loans will be free of interest if they are paid back within a year. Otherwise, interest will be charged at 3 per cent annually up to the maximum total term of five years.
Repayments would not be required during the first two years, Robertson said.
The eligibility criteria will be the same as those for the wage subsidy scheme, meaning the loans will also be available to the self-employed, including sole traders, who will be able to borrow up to $11,800.
‘‘We are targeting this scheme at those who have a viable business but have been put in a position of not generating any revenue,’’ Revenue Minister Stuart Nash said.
The intention to establish the small business cashflow loan scheme was revealed in the Covid-19 (Taxation and Other Regulatory
Urgent
Measures) Bill that passed under urgency on Thursday.
But ministers did not reveal the details of what it would provide until yesterday.
The tax bill states that the loans must be repaid, but an explanatory note in the legislation says that if a portion of a loan is converted into a ‘‘grant’’ that will not have adverse income-tax implications for the applicant.
That suggests the Government is expecting some amount of money lent by IR under the scheme not to be repaid and to be written off.
Robertson and Nash’s statement did not say how many loans it expected the scheme would provide or at what cost to the Government, or whether applicants would be required to put up any form of security. Further comment has been sought from the ministers.
The Bankers Association has been approached for comment on Robertson’s assertion that its member banks had not met the lending expectations of businesses or the Government.
Auckland Chamber of Commerce chief executive Michael Barnett said he would have preferred grants rather than loans, but the loans scheme was welcome and ‘‘better late than never’’.
‘‘Cash flow is the biggest issue for the 500,000 small and medium enterprises locked down and locked out of their businesses during level four,’’ he said.
‘‘They have rents to pay and overheads that will not go away and the last thing they need to do is take on more debt, no matter how attractive the offer may seem.
‘‘I would hope that Government will play a long game ... and consider forgiving the debt to build recovery and confidence to revitalise the business to create and sustain employment in the community,’’ he said.
The small business cashflow loan scheme is separate to the Government’s business finance guarantee scheme under which the Government has agreed to guarantee up to $6.25 billion of regular bank lending to small businesses.
National Party economic development spokesman Todd McClay called on Wednesday for the Government to provide direct financial assistance to small businesses, saying the Government could look to Australia to consider how best to provide that.