Small businesses under pressure from the Covid-19 outbreak are expected to have a high up-take of the Government's loan scheme.
Small businesses under pressure from the Covid-19 outbreak are expected to have a high up-take of the Government's loan scheme.
The amount of money loaned through the Government's interest-free small business cashflow scheme could run into the billions and one restructuring expert is predicting "quite a portion" of businesses won't be able to pay the money back.
On Friday the Government announced a Small Business Cashflow Loan Schemeto provide assistance of up to $100,000 to firms employing 50 or fewer full-time equivalent employees.
It will loan $10,000 to every firm and an additional $1800 per equivalent full-time employee.
Loans will be interest-free if they are paid back within a year. The interest rate will then be 3 per cent for a maximum term of five years. Repayments are not required for the first two years.
The Government has not indicated what it expects the take-up of the scheme to be or its costs.
But in a note to clients, major accounting firm Deloitte said that if all 213,599 self-employed people who had received the employer wage subsidy applied for the scheme it would be the equivalent of $2.5 billion.
On top of that would be businesses who employ others.
"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 [full-time equivalent].
The small business loan scheme will have the same criteria as the employer wage subsidy but applications will be via the Inland Revenue from May 12.
David Webb, national head of restructuring services at Deloitte, said he believed the take-up of the loans would be high.
"I think what we will see is a lot of people taking the loans because they are needed, and because it is there."
Webb said those going for the loans would likely be using the money to deal with short-term pain like rent arrears and wages.
It would help those who were getting to the end of the wage subsidy, he said. For many the 12 week subsidy would be starting to run out by early- to mid-June.
"I think we will see those businesses looking to grab it as an opportunity to retain staff."
The loans would also "give more runway" to businesses who had yet to reopen or were not able to operate fully under the current alert level.
"I see it very much as buying more time for business owners to get a plan in place."
Webb was hesitant to provide a percentage figure or range for those who would not pay back the loans but said: "I do believe there will be quite a portion of businesses that won't be able to pay back the loans."
"There are two things that trip people up - an inability to pay taxes and the other thing is when they fall foul of their financier."
Webb said the Inland Revenue Department had so far been quite supportive of businesses, waiving late fees for delayed tax returns and GST filing, and a continuation of this would be key to helping enable businesses to pay back the loan.
Those who posed the greatest risk to not paying the loans back were likely to have already been struggling a bit before Covid-19 hit.
"Some were just getting by and weren't looking deeper. They were doing a bit of robbing Peter to pay Paul, a little bit of a money go round. Those are the ones who pose a risk."
He said businesses who were facing issues purely because of Covid-19 may do okay.
"They have got a huge struggle ahead but I think generally speaking will come through this."
Robyn Walker, a tax partner with Deloitte, said businesses should keep in mind that the money was a loan and still needed to be paid back.
Walker said finance minister Grant Robertson had also made it clear that the IRD would be auditing the loans.
She advised businesses to wait and see terms of the loan.
"What are the actual terms and how prescriptive are they?"
An IRD spokeswoman said details of the scheme were being worked on.
"They'll be ready for publication on May 12, or earlier if possible."
