From Tuesday 12 May New Zealand businesses can apply for the Small Business Cashflow (Loan) Scheme (SBCS) from the Inland Revenue. In summary, the SBCS is a further government scheme in response to COVID-19 aimed at providing small businesses loans of up to NZD100,000 immediately. The SBCS loans will be interest free for the first year and then subject to a rate of 3% for up to 5 years, with no repayments required for the first 2 years. The SBCS will be administered by the Inland Revenue. It is worth noting that initially the government announced the Business Finance Guarantee Scheme, under which banks would make loans to small businesses which were 80% secured by the government. Given the slow uptake of the Business Finance Guarantee Scheme and the security requirements of NZ registered banks, the government is hoping the SBCS will be more accessible and effective at quickly delivering loans to small businesses that need emergency funds.
In summary, the SBCS terms are as follows:
- A business can borrow NZD10,000 plus NZD1,800 for each equivalent full-time employee up to a maximum of NZD100,000.
- There will be no interest payable if the loan is paid back within a year.
- If the loan amount is not paid back in full within a year, then the business will be charged interest for the entire period from the commencement of the loan.
- No repayments of principal or interest are required for the first 2 years. After 2 years, the business will be required to make regular payments for both the principal and interest.
- The SBCS opens on Tuesday, 12 May 2020 and applications can be made via a myIR account at Inland Revenue.
The SBCS loan Criteria
A business should be eligible to apply for the SBCS if they meet the following criteria:
1) Wage Subsidy
First, eligibility for the loan is linked to the Wage Subsidy:
- If a business included all of their employees in a wage subsidy application, they are eligible for the SBCS loan if their wage subsidy was NZD351,480 or less. This equates to 50 full-time employees.
- If a business did not include all employees in the wage subsidy application, the business will only be eligible for the SBCS loan if the amount of wage subsidy they could have received, if they have included all of their employees, was NZD351,480 or less.
- If a business did not apply for the wage subsidy, a business can still receive the SBCS loan if they were eligible for a wage subsidy of NZD351,480 or less if they were to apply for all of their employees.
2) Commonly owned groups
Second, if the business is part of a commonly owned group of businesses, then all businesses will be treated as a single business when applying the eligibility cap of 50 full-time employees and for the purposes of assessing the available loan amount.
3) The business must be viable
Third, the business must be viable and the business must have a plan to ensure it remains viable. This generally means the directors or owners have good reason to believe it is more likely than not the business or organisation in receipt of the SBCS loan will be able to pay its debts as they fall due within the next 18 months.
A business must have evidence of the viability of the business at the time of requesting the loan and maintain that evidence in the event of an audit. Inland Revenue have provided the following evidence of the types of information that may demonstrate the business is viable:
- A cash-flow forecast for the business or organisation for the short term.
- A plan for where revenue will come from in future market conditions, and a forecast of those revenues.
- Financial statements showing the business or organisation has enough resources to sustain itself when including the SBCS loan.
- An accountant’s assessment that the business or organisation is viable and ongoing.
Exactly how some of the above criteria above apply is unclear at this stage.
Failure to repay
The SBCS loan terms and conditions also include provisions for dealing with repayment and failure to repay. Broadly, if a borrower misses a repayment after the 2 years they will fall into default, meaning Inland Revenue may accelerate the loan and require repayment of the SBCS loan in full. In addition, the interest rate on the SBCS loan could increase from 3% to 10% (being the 3% plus the current Use Of Money Interest (UOMI) rate for underpayments of tax, which is now 7%).
Details of the SBCS Loans are set out on the Inland Revenue’s website and in the Loan Terms and Conditions. Further details can be found here.