Article:

Business Finance Guarantee Scheme FAQ

18 May 2020

Finance Minister Grant Robertson announced on 1 April that businesses can start applying for loans under the Business Finance Guarantee Scheme.  The Scheme (outlined in our 25 March article) is a collaboration between the Government and banks, set up to support the New Zealand economy during the COVID-19 pandemic. 

Read all the frequently asked questions below. 
Information included in this insight was last updated on 18.05.2020

 

What is the purpose of the Scheme 

 

The purpose of the BFG scheme is to get vital funds through to New Zealand businesses to allow them to recover from the impact of COVID-19.

The Government guarantee allows businesses to leverage the Government’s balance sheet as guarantor for the loan.

 

Which banks are offering the loans 

 

All the major banks in New Zealand are able to lend funds to NZ businesses who meet the criteria. 

The Banks participating in the scheme are

  • ANZ
  • ASB
  • BNZ
  • Heartland Bank
  • HSBC
  • Kiwibank
  • SBS
  • TSB
  • Westpac

 

What are the eligibility criteria?

 

Any business that has been or expects to be impacted by COVID-19, that is:

  • A New Zealand-based business
  • Has an annual turnover of up to $80m at the end of its 2019 financial year
  • Operates in a sector that is not excluded under the scheme (see below).

 

How much can I apply for?

 

Loan of up to $500,000.  As with any loan, you should only apply for an amount that you can repay.

 

Loan Term

 

90 day minimum term and 3 year maximum term 

 

Where can I apply for the loan? 

 

You should make contact with your usual banking representative.  Most of the banks will require you to be an existing customer to apply for the loan.

 

What can the loan be used for?

 

The loan can be used to for operating expenses while the business deals with the disruption of COVID-19.  Only 5% of the loan can be used for capital expenditure.

The loan cannot be used to pay dividends or for on-lending outside borrower’s guaranteeing group.

The requirement for customers to draw on committed debt facilities has been removed from 1 May 2020, but generally, the existing facility limits will remain in place

Loan can only be used to refinance existing debt if it is a loan advanced on or after 16 March 2020 that meets other criteria (including the other criteria for Scheme loans).

 

Does the Government guarantee absolve the company from providing any guarantees?

 

No. The company and possibly its directors will still need to provide security, probably including personal guarantees over personal assets. 

The requirement by the Government for the Bank to require a general security assignment (GSA) for loans over $50,000 has been removed from 1 May 2020, but in some cases the Bank may still require a GSA if they don’t already hold one.

 

How does the Government guarantee work?

 

The Government guarantee does not absolve the business from repaying the loan and providing guarantees. The guarantee is for the benefit of the lender, not for the business that borrows the money (other than to encourage banks to make loans that they may not otherwise have made). The business does not directly benefit from the guarantee and remains responsible for repaying the loan and interest.

If the business defaults on the loan to the Bank, the Bank will first attempt to recover the entire loan amount from the business and its Guarantors and, if unsuccessful, it will then recover up to 80% of the shortfall from the Government.

 

Will there be special payment terms or interest on the loan?

 

It does not appears that the banks will provide the borrowers with special interest rates, processes or payment terms.

Banks have however come up with individual relief packages which provide flexibility with regards to existing repayment terms, interest costs and fees. These include (but are not limited to); the ability to defer existing loan repayments, waive establishment fees and various other concessions. You will need to explore these with your individual bank

 

Are any sectors excluded from applying?

 

Most business sectors are eligible under the scheme, however certain sectors were purposely excluded

  • Property development
  • Property Investment
  • Tobacco manufacture
  • Processing of whale meat
  • Recreational cannabis
  • Manufacture of specified munitions and firearms

 

What information might I need to supply?

 

You need to understand the impact of the virus on your business and how you would use any funds borrowed.

While bank requirements might differ depending on your Bank and your circumstances you should expect to provide

  • Your last set of financial statements for the business
  • A copy of your most recent tax return
  • A cash flow forecast detailing your income and essential expenditure for at least 3 months and what a return to more normal business might look like over 2-3 years.
  • A personal statement of positon

 

How can BDO help you? 

 

Your usual BDO adviser will be able to help you

  • Review your trading position before the COVID crisis
  • Consider and review your plans for the future
  • Identify any assumptions you might need to make regarding financial and operating matters.
     

When can I apply for the Loan?

 

The Guarantee scheme loans are currently available between 1 April and 30 September 2020.

 

BDO can help you with all matters regarding these scheme loans including

  • assessing your business and its ongoing viability
  • gathering the required information to ensure you are providing a robust plan to your bank
  • making an application

Funding towards the costs of providing business plans and cash flows may be available through the Regional Business Partner Network

 

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