Deep concerns about the economic pain among small and medium-sized businesses will see onerous aspects of the government's bank finance support scheme removed and its scope extended to much smaller businesses.
The detail from the Treasury, just before 5pm, was the second initiative today intended to pump survival cash into the nation's struggling small traders.
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The changes were foreshadowed without detail earlier today by Finance Minister Grant Robertson when he announced another scheme giving small businesses up to $100,000 of lending through the tax department, interest free for the first year.
Among key changes to the bank finance guarantee scheme, businesses turning over less than $250,000 a year will be able to access the scheme and applicants will no longer have to exhaust all other sources of credit before being accepted into the scheme.
Crucially, lending over $50,000 will no longer have a general security agreement – a clause that can require a small business owner to put their home or other major assets on the line in order to be considered for lending.
"After hearing from banks and the business sector, these changes are based on the feedback received. More updates may be made in the future to further improve the scheme," the statement, made without attribution to any official or government minister, said.
The Treasury statement comes after the surprise creation of a new scheme allowing small businesses to borrow up to $100,000 from Inland Revenue already in place but requiring eventual repayment, interest-free for a year and then at 3 per cent annual interest.
Robertson said this scheme was being introduced because the Business Finance Guarantee scheme, announced last month, was not working as intended for small businesses.
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The BFG scheme is a $6.25 billion initiative under which trading banks are encouraged to lend to small and medium-sized enterprises on normal commercial terms but the government guarantees 80 percent of the lending in the event of default. The scheme has been slow to get going but has gained momentum in recent days.
However, small businesses have had difficulty meeting credit and bank information requirements, according to reports from some would-be borrowers.
The changes announced late today make several key changes to the original BFG scheme by:
• removing the $250,000 lower borrower revenue threshold;
including farmers within the scheme;
• moving the date that customers must not have been on banks' watchlists from Feb. 28 to Jan. 31, recognising that some companies were impacted by covid-19 earlier than others (eg forestry);
• no longer requiring customers to draw down all existing facilities before applying;
extending the term of temporary facilities that can be refinanced into the scheme from 90 days to 180 days; and
• removing the government expectation that lending over $50,000 would require a general security guarantee.
"Banks remain in control of their own lending decisions and may have their own requirements," the Treasury statement says.
"With other packages including the government small business loans announced this morning, tax changes, wage subsidy, commercial property measures and consultancy support already available, there is a substantive package to help business get through this phase and into recovery," the statement said.
Robertson and Small Business Minister Stuart Nash had earlier today announced the loan scheme to be administered by the Inland Revenue Department, which was rushed into law last night along with other covid-related tax changes.
The haste to get the IRD scheme enacted produced a rare parliamentary blunder.
As Act Party leader David Seymour put it: "The legislation tabled in Parliament and released to the public was different from the bill passed through the House. Act had been consulted on the former but the latter included a new small business loan scheme."
A spokesman for Robertson's office said the scheme had been under discussion for some weeks and denied that it had been rushed into legislation in response to a growing crescendo from the SME sector about impending business failures caused by the loss of cashflow, which for some sectors began well before the five-week national lockdown instituted on March 25.
Many small retailers remain unable to trade while the country is in level 3 lockdown and are hanging out for a decision to move to level 2, which the Cabinet is not due to consider until May 11.