The government's small business loan scheme that bypasses banks in favour of the Inland Revenue Department processing applications is proving far more successful than the earlier business finance guarantee scheme.

Revenue and Small Business Minister Stuart Nash said the IRD had lent nearly $1 billion in loans under the small business cash flow loan scheme after just two weeks.

NZ Bankers' Association figures show the $6.25b business finance guarantee scheme (BFGS) launched in early April, a month before the IRD-administered scheme, had lent just $60 million to 376 businesses as of Monday this week.

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"Cashflow is crucial to kickstarting the economic recovery for our small businesses," Nash said in a statement announcing the lending figures under the IRD scheme.

More than 55,000 businesses had applied for about $960m of loans, with 95 per cent already granted, and the government expected to pass the billion-dollar mark within the next day or so, Nash said. The cash usually arrived in bank accounts within five days, he said.

About 90 per cent of applications have been from firms with 10 or fewer staff and the average loan size has been about $17,300.

Robertson clearly 'frustrated'

Under the scheme, businesses with 50 or fewer fulltime-equivalent employees, and which were eligible for the Government's wage subsidy, can apply for a $10,000 loan plus another $1800 per fulltime-equivalent employee.

The loans are for up to five years and are interest-free if repaid within a year but, otherwise, interest of 3 per cent will be charged.

Finance Minister Grant Robertson was clearly frustrated at how little had been lent under the BFGS when he announced the IRD-administered alternative on May 1.

"It has become clear the support that is available to our small and medium businesses from banks is not meeting their needs, nor our expectations as a government. That is why we have moved to provide this scheme to give some much needed cashflow," Robertson said then.

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The Government eased some of the restrictions on the BFGS the same day, removing the minimum annual turnover threshold of $250,000, opening it up to farmers and removing the requirement for a general security agreement for lending above $50,000 – the IRD-administered scheme doesn't require a guarantee.

Businesses with annual turnover up to $80m are eligible for the BFGS and the Government is guaranteeing 80 per cent of each loan.

A week later on May 8, the bankers association released the first hard numbers on the scheme, illustrating why Robertson had reason to be frustrated: By that date, the banks had lent just $23m. The latest figures show lending under the scheme hasn't accelerated much, despite the tweaks.

Right time

"The interest-free loans have come at just the right time," Nash said today. "This is much-needed working capital for small businesses which, for a variety of reasons, have not been able to approach banks or investors for support," he said.

"I have received positive feedback about how easy it is to apply online and how fast the loan has arrived."

Nash said about 45 per cent of applications were from firms with just a single employee, 33 per cent have between two and five staff and 12 per cent have between six and 10 staff.

"About half of those taking out loans are mature or long-standing firms that have been trading for more than five years," he said.

The loan applications have also come from around the country with 2528 applications from Tauranga businesses, 1575 from Palmerston North, 1482 from Whangarei, 1240 from Nelson and 1181 from Napier.

Firms have until June 12 to apply for IRD-administered loans but Nash said he is seeking advice on extending the deadline, given the substantial demand.

A spokesperson for Nash said the IRD-administered scheme was developed too late to be included in the Government's Budget and the Treasury hasn't published an estimate of how much might be lent under the scheme.

BusinessDesk understands that if about 80 per cent of those who qualified for the wage subsidy applied for the IRD-administered scheme, about $5b could be lent.

- BusinessDesk