Small biz loans welcomed as banks accused of being too tough

Small business owners will be able to access interest free loans of up to $100k. Photo / file

The small business loan scheme has been welcomed by the industry but questions remain over whether or not it will be enough to keep some small businesses going.

The Government today announced it would provide interest free loans for a year to small businesses struggling to weather the impact of covid-19.

The Small Business Cashflow Loan Scheme will provide assistance of up to $100,000 to firms employing 50 or fewer full-time equivalent employees, Robertson and Revenue Minister Stuart Nash said.

It will provide $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 percent for a maximum term of five years. Repayments are not required for the first two years.

Leeann Watson, chief executive of the Canterbury Chamber of Commerce said the announcement was definitely welcome news and would provide relief for many small businesses under pressure from the restrictions as a result of Covid-19.

"Whether or not it is enough, is yet to be seen," she said.

Watson said there was still some businesses that could not operate under alert level 3 as well as those that could operate but with reduced productivity because of social distancing requirements.

Depending on when the alert levels were changed it would be some time before some businesses were back up to full capacity, she said.

The Government appears to have made the move after being disappointed with banks' ability to help small businesses through the business finance guarantee scheme which has been 80 per cent back by the Government.

In a statement, Finance Minister Grant Robertson said: "It has become clear that 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."

Watson said she knew some businesses which had successfully applied to the bank scheme.

But she said for it was really hard for them to get access to finance because they didn't meet the criteria for the scheme or the requirements.

There was a perception that the scheme would be easy to access, because of the government backing but applicants found the process little different to applying for a loan during pre-covid times.

"The scheme hasn't been the silver bullet a number were hoping it would have been for small business," Watson said.

"There was an expectation there would be a bit more leniency around the terms and conditions but that hasn't come to fruition," she added.

Sue de Bievre, chief executive of accounting firm Beany, said she knew of many small business owners who had been turned down by the banks and told "your business is not viable" even when they had a good plan.

"We've discussed some of this with our bank contacts who tell us that the banks don't want to take any unnecessary risks, even with the government guarantee as they still lose money and it's a hard process to recover their money."

De Bievre said some of her clients were in real difficulty and the interest free loan would make all the difference.

"Even if some loans are defaulted on, at least the money is still in the economy and this will surely save some jobs."

The new small business cashflow loan scheme will have a similar criteria to the employer wage subsidy scheme and will be administered by the Inland Revenue Department.

Watson said the wage subsidy scheme had been easy for businesses to use and money had been paid out quickly.

"I hope we will see the same with this."

Brett O'Riley chief executive of the EMA, said the small business cashflow loan scheme would definitely help some survive.

"The terms of this scheme are very similar to the Canadian approach which we and the other members of the BusinessNZ Network encouraged the Government to look at, and the fact that they are interest-free if paid back in a year is very helpful."

"Even with other Government assistance, we know our smaller members are really struggling to cover their fixed costs with no cashflow during Alert Level 4 or Alert Level 3."

O'Riley said while the loans were helpful the solution to business cashflow problems lay in allowing people to get back to business, within health and safety guidelines.

"While $10,000 sounds like a lot of money, recent surveys by the Auckland Business Chamber suggest it is on average less than a month of fixed costs for a small business with less than 20 staff. They need to be able to generate their own cashflow as soon as possible and regenerate their business."

Applications for the loans open from April 12.