IRD cashflow scheme lends more than $1.33b
The ‘Bank of IRD’ has lent small businesses just over $1.33 billion through the Small Business Cashflow Loan Scheme (SBCS).
Loans through the scheme have far outstripped the
$86 million of loans made by banks under the Government’s Business Finance Guarantee Scheme (BFGS).
But Kiwibank senior economist Jeremy Couchman said less had been lent under both schemes than he would have expected.
‘‘What we have been hearing from businesses was part of the reason they didn’t take it [a Government-guaranteed bank loan] was it was just too difficult,’’ Couchman said. By contrast, he said: ‘‘The way through the IRD was pretty straightforward.’’
In the first week after launching in mid-May, there were just over 50,000 applications for loans through the SBCS, and by June 9 the number had passed
78,000. That compared to just 503 BFGS loans made by banks by June 8.
When the Government unveiled the BFGS in April, it hoped as much as $6.25b would be lent by banks under the scheme.
But even with that, Couchman would have expected more loans to have been made by this time.
The SBCS loans, which can be for up to a maximum of $100,000, were also more favourable for businesses as they were interest free if paid back within a year, but as the size of loans was linked to the number of employees a business had, the average loan size was just under $17,000.
SBCS loans could run for up to five years, but after the first year, the interest rose to 3 per cent.
‘‘The key is to ensure that firms that would otherwise be profitable don’t go out of business because of a temporary hole in their cash flow that was outside their control,’’ said Gareth Kiernan, chief forecaster at Infometrics.
‘‘The interest rate and lack of hoops to jump through make the scheme much more attractive than the original bank guarantee the Government put in place, particularly given that the latter required businesses to exhaust all other borrowing or credit options before applying for it.
‘‘My understanding also is that the banks were still quite reluctant to lend to small businesses, even with the Government underwriting 80 per cent of the loan, which probably reflects the banks’ risk aversion given the extremely uncertain economic environment at the moment.’’
Roger Beaumont, chief executive of the New Zealand Bankers’ Association (NZBA) expected an increase in loans made by banks under the guarantee scheme in the coming weeks.
‘‘As people get through the immediate survival period, they will be able to think about their longer-term position,’’ he said.
Banks had made nonGovernment guaranteed business loans of $10.3b to 16,428 businesses since March 26, he said.
‘‘Banks haven’t been idle. They have been supporting their business customers,’’ he said.
In addition to new lending, just over 16,200 businesses had been allowed to make reduced repayments on existing loans, or to defer making repayments at all on a combined $13.5b of loans, NZBA figures showed.
The amounts of money paid out by both the SBCS and BFGS were dwarfed, however, by the Wage Subsidy Scheme operated by the Ministry of Social Development, which had paid out just over $11b to businesses as of May 29, to help them pay the wages of around 1.7 million workers.
Some believed the Government needed to do more to support small businesses.
Craig Garner, former head of Business Mentors New Zealand, said many struggling small business owners didn’t have the time, resilience, or skills to manage complex loan applications with banks. The single most supportive move the Government could make was to subsidise accounting help for small businesses.
‘‘Give them access to a bookkeeper for nothing. You would see a massive turnaround,’’ he said.
Others believe businesses need support to make new hires.
‘‘The Government has chosen to spend billions of dollars to subsidise businesses to pay their staff,’’ said researcher Julian Wood from the Maxim Institute think tank.
‘‘Our research tells us if we’re going to subsidise businesses to pay wages it would be better to shift to assisting firms to take a chance on hiring new workers in this time, when they’d be otherwise unlikely to take that risk.’’