More than just a favoured few should benefit from lending and wage subsidy changes to help businesses

 The business sector generally– rather than a few individual companies being favoured with grants or loans from an array of troughs – are the beneficiaries of two new government  pronouncements since Point of Order last checked the Beehive website.

First, the Government is offering to underwrite larger bank loans to businesses through  its Business Finance Guarantee Scheme.

The cap on loans offered under the scheme is being raised (hugely) from $500,000 to $5 million and the scheme is being broadened to enable businesses to use the loans for purposes beyond cashflow.

Second, eligible businesses can apply for a two-week wage subsidy of up to $1,171.60 per worker from today.  This is designed to help cover wages as part of the government’s plan to protect jobs and support the economy.

Applications for the new wage subsidy will be open on the Ministry of Social Development website from 1pm today.

Finance Minister Grant Robertson and Social Development Minister Carmel Sepuloni say the new wage subsidy and the current Wage Subsidy Extension – which is open for new applications until 1 September – will support an estimated 930,000 jobs.

But here’s the thing:  the government has put aside more money for wage subsidies than is being taken up. 

The government acknowledges this when it says the new wage subsidy, and the expected increase in applications for the Wage Subsidy Extension, will be funded by an under-spend on the Wage Subsidy Extension. This means the Government does not need to access the $14 billion remaining in the COVID Response and Recovery Fund for the payments.

The wage subsidy and Wage Subsidy Extension have so far paid $13.2 billion to businesses to protect more than 1.7 million jobs.

Changes to the COVID Leave Support Scheme also come into effect from today.

The rules for the Business Finance Guarantee Scheme are being relaxed because the demand has been less than expected, too.

The simplification and expansion of the scheme will allow banks to make more loans available under the government’s 80% guarantee.

Key changes include:

  • Maximum loan limit increased from $500,000 to $5 million
  • Maximum term of loan increased from three years to five years
  • Criteria for borrowing extended from liquidity support/bridging finance to enable general purpose borrowing, including for capital investment, for businesses affected by COVID-19
  • More medium-sized firms can access these loans with revenue limits extended from $80m to $200m per annum.
  • Scheme available until 31 December 2020
  • BFGS loans can be used to re-finance up to 20% of a borrower’s existing indebtedness
  • Watchlist criteria relaxed
  • Personal guarantee requirement clarified – there is no personal guarantee required by the Crown. The Crown will pay a claim in event of default where no personal guarantee has been provided
  • Discretion available for banks to act outside Supported Loan Policies, Practices, and Processes.

The Business Finance Guarantee Scheme supports the provision of bank loans to viable businesses, encouraging banks to lend where otherwise they may not, by the Government taking on the default risk for the bank of up to 80% of the loan. Borrowers are still liable and must pay the debt back, with interest, in the usual way.

The Treasury’s website, Treasury.govt.nz, has comprehensive information on the Business Finance Guarantee Scheme. Participating banks are ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac.

 Latest from the Beehive

21 AUGUST 2020

New wage subsidy open to protect jobs, support businesses

Eligible businesses can apply for a two-week wage subsidy of up to $1,171.60 per worker from today to help cover wages as part of the Government’s plan to protect jobs and support the economy.

 20 AUGUST 2020

Business Finance Guarantee simplified and expanded to support COVID-19 recovery

Changes to simplify and expand the Business Finance Guarantee Scheme will allow banks to make more loans available under the Government’s 80% guarantee.

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