COVID-19: Government introduces more cashflow support for businesses affected

The Government has today announced another significant initiative to help small to medium sized businesses obtain much needed cashflow – the Small Business Cashflow Loan Scheme. Legislation giving effect to this scheme was passed through Parliament under urgency yesterday.

From 12 May 2020 the Inland Revenue will effectively become a bank and will be issuing loans, on application, to businesses with up to 50 full time equivalent (FTE) employees. Businesses will be eligible for a loan if it meets the existing Wage Subsidy eligibility criteria (refer here for our guidance on the Wage Subsidy scheme), and the business declares that it is a viable business. The loan is designed to be used to pay core business operating expenses (such as rent, utilities, rates, suppliers); the loan cannot be passed through to the owners of the business as either a loan or dividend.  

The amount of the loan will be $10,000 plus an additional $1,800 per FTE. The loan will be interest-free if repaid within one year. If not repaid within a year the applicable interest rate will be three percent per annum, for a maximum term of five years. Repayments will not be required for the first two years.

Loans will be up to $100,000 for a business with 50 FTEs.

The Government has not indicated what the expected uptake or fiscal cost of the Small Business Cashflow Loan Scheme will be. However, the latest Wage Subsidy statistics (as of 24 April) released by the Ministry of Social Development shows that Wage Subsidies have been received by 213,599 self-employed people (which would be the equivalent of issuing over $2.5 billion of loans if all applicants took up the loan); a further 213,239 employers have applied for and received the Wage Subsidy, of which a large number would be eligible for a loan. The Minister of Finance has indicated that there are approximately 400,000 businesses in New Zealand with 50 or fewer FTEs.

Businesses will be able to apply for the loan through www.ird.govt.nz, with the Minister of Finance indicating that initially the loan scheme application process will be open for a period of one month (but the application period may be extended).

As indicated in our previous guidance, it is very important that businesses fully assess their eligibility under the Wage Subsidy scheme, as eligibility for that scheme is now doubly important to support eligibility for the Small Business Cashflow Loan Scheme. The Minister of Finance has stated that the Small Business Cashflow Loan Scheme (and by inference the eligibility for the Wage Subsidy scheme) will be subject to an audit process led by the Inland Revenue.

In addition to the Small Business Cashflow Loan Scheme, some of the terms of the existing Business Finance Guarantee Scheme are being adjusted to make the scheme more readily accessible to businesses. These changes include removing the requirement for a General Security Agreement. More changes will be considered to the scheme to ensure it is effective at providing support to businesses.

The announcements today will be viewed very positively by many businesses who have been struggling with a lack of cashflow; the eligibility criteria will likely see many businesses finding this loan option an easier option than approaching a bank.

Other tax measures

As was announced on 15 April, the Government has now legislated for a temporary loss carry-back rule. This rule is designed to allow businesses expecting to incur a tax loss in either the 2020 or 2021 tax year to carry the loss back to the immediately preceding tax year in order to obtain a refund of previously paid tax. The rules are designed to boost cashflow for businesses and is anticipated to result in $3 billion of tax refunds. The rules have a number of complexities associated with them, so we recommend that businesses talk with their usual Deloitte advisor before making use of this scheme. A number of the complexities are discussed here.

The content of this article is accurate as at 1 May 2020, the time of publication. This article does not constitute professional advice. If you wish to understand the potential implications of current events for your business or organisation, please get in touch. Alternatively, our COVID-19 webpages provide information about our services and provide contacts for relevant experts who can help you navigate this quickly evolving situation.

01 May, 2020 by Bill Hale, Business continuity

Bill Hale

Bill Hale

Bill Hale is a partner in Deloitte Private and leads the Fast 50 team in Auckland.

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