Extend guarantee scheme — business advocate

The Government’s $6.25 billion business finance guarantee scheme should be widened to include small businesses with revenue of $100,000 or more, the New Zealand Initiative said.

The scheme is open to businesses with turnover between $250,000 and $80 million as part of the government’s efforts to cushion the economy from the coronavirus crisis and national lockdown.

“The bottom end isn’t big enough, it excludes a lot of sole traders and that’s a big part of New Zealand business,” NZ Initiative chair Roger Partridge told Businessdesk.

The scheme, opened this week, allows businesses to apply for loans from any of the nine participating banks: ANZ Bank, ASB Bank, Bank of New Zealand, Heartland Bank, HSBC, Kiwibank, SBS Bank, TSB Bank and Westpac.

Under the scheme, businesses can apply for loans of up to $500,000 for up to three years and the Government will underwrite 80 per cent of the amount lent.

Partridge said the hit to incomes of businesses having to shut due to the Government’s efforts to stop covid-19 spreading means they are desperate for credit.

The guarantee scheme has dealt with one part of making that credit available but the Government also needed to look at the responsible lending code and how insolvency laws impact directors, he said.

"Before taking on a new loan, directors must be satisfied their company will be able to repay its debts as they fall due. Yet, without a crystal ball, they have no way of making that assessment."

“Before taking on a new loan, directors must be satisfied their company will be able to repay its debts as they fall due. Yet, without a crystal ball, they have no way of making that assessment,” Partridge said.

Similarly, the responsible lending code means banks must be satisfied borrowers can repay a loan without suffering undue hardship.

“In the midst of the crisis, how can financiers possibly do this?”

Three of the banks, ANZ, Westpac and

Kiwibank, have said they will honour the spirit of the guarantee scheme and assess business solvency on the basis of their past trading history and their prospects for the future.

BNZ and ASB have been more cautious. ASB, which has said it believes it can lend close to $1b under the scheme on top of other measures, said it won’t be able to lend to everyone.

“The reality is, for some businesses, increasing levels of debt might not be the best option for them long term,” chief executive Vittoria Shortt said when announcing how ASB will participate.

“There will be some tough conversations ahead, but that is our job as responsible lenders,” Shortt said.

BNZ has taken a similar stance, although outside the scheme it is offering a 24/7 online business lending service of up to $100,000 without additional security.

But the responsible lending code could make it difficult for banks to make lending decisions.

“If it’s a case of saving companies and saving jobs, there are some risks the Government has to take that it ordinarily wouldn’t,” Partridge said.

He noted that since the Government announced the wage subsidy — it is paying companies the minimum wage for each of its employees — the group’s message to the Government had been to extend its reach, extend the term it will be in place for and increase the amount. “That’s not a traditional NZI stance.” The organisation doesn’t normally favour massive government intervention but now it’s a case of keeping the economy on life support, Partridge said.

“The Government needs to nurse companies through the crisis so that they’re still there when the country comes out of lockdown.”

Partridge said there were myriad regulatory obstacles the Government needed to remove if it wanted businesses to survive.

He welcomed the Commerce Commission’s statement that it won’t enforce coronavirus-related breaches of the Commerce Act, but noted this still leaves firms exposed to lawsuits from third parties.

Another matter Partridge would like the Government to deal with is getting the Overseas Investment Office to grant a class exemption to companies raising equity if that means taking their foreign ownership above the 25 per cent threshold.

That’s the cut-off level at which the company is regarded a foreign entity.

“The OIO has been talking about a class exemption but they haven’t made it,” he said.

Businessdesk understands the Government is looking at making insolvency law more flexible.