The latest lockdown and level restrictions have forced many businesses to rethink the way they work and operate.
Paul Manning is a partner from BDO’s Tauranga office, and he joins me now to talk about some changings coming from government that may affect you or your business. Paul is a chartered accountant, and licensed insolvency practitioner and he specialises in business turnaround and recovery.
We’ve all heard about the wage subsidy – what’s different about the resurgence wage subsidy?
So, the resurgence subsidy came in obviously because of Auckland going into lockdown again, but despite the fact that it’s only Auckland in level 3, the subsidy is available to businesses nationwide. It’s for a two week period – only 14 days – as compared to the original subsidy which was available for eight weeks. Similar to the original subsidy, your revenue or expected revenue has to drop by a minimum of 40%. That’s either best endeavours in terms of forecasting for that two week period or actual results. If your actual revenue doesn’t fall by the minimum of 40%, then you would have to repay that resurgence subsidy.
What’s the business finance guarantee scheme?
It is basically the government encouraging banks to support businesses through this difficult Covid-19 environment. We’re now in the second iteration of that scheme - the first iteration didn’t seem to be particularly popular or get too much uptake, so the government are obviously hoping that by changing it around a little bit and making it a little bit more attractive, more people or business owners might take that out.
So, some of the major changes from the original scheme is in relation to the length of the loan – so a loan which was originally for 3 years will now be available for 5 years for business owners, at once again, what’s deemed to be competitive interest rates. We’re obviously in a low interest rate environment, so you’d expect competitive interest rates. Previously there was quite a restriction on the amount of the loan you could use for capital expenditure in your business – it was originally 5% of the overall loan total, but now that restriction has been removed, which is good news.
How much can you borrow?
You can borrow up to $5 million. It was originally $500,000, but it’s now up to $5 million, so it’s quite a huge increase. The threshold for an eligible business to apply for this loan was originally turnover (or sales revenue) of $80 million – that’s now been increased to $200 million. So obviously a lot more larger businesses would be entitled to apply.
What should people consider – what should businesses consider – when trying to understand if this scheme might suit them?
I think businesses need to look and see what is it that they need to survive, both in the short, medium and long term; do they need additional debt in their balance sheet, which they’ll obviously have to service in terms of paying interest and making capital payments; or do they need equity finance, because too much debt and not enough equity puts a lot of strain on a business. You probably need to see whether the business is viable, first and foremost, and how it may be viable – talking to your professional advisor on a timely basis is obviously a good start and I think with any of these loans, the banks will be having a very good look and asking some very robust questions regarding the forecasts, as to how these businesses might succeed and indeed repay these loans in due course.
Fantastic – that’s Paul Manning from BDO Tauranga. Thanks for your time this morning and for providing some detail about those Covid schemes coming from the government. If you have any questions that relate to specific circumstances that are affecting you or your business you can contact Paul direct at BDO Tauranga or any of the BDO offices around New Zealand.