“Businesses have been hard hit by the North Island weather events earlier this year and the impacts continue to be felt, particularly for those in the horticultural sector.”
The loan guarantee scheme will provide relief to affected firms seeking commercial lending, Robertson said.
“This scheme leverages the Crown’s financial strength by carrying 80 per cent of the credit risk on covered loans, allowing banks to reduce interest rates and offer more flexible terms.
“The Government’s underwrite will support loans of up to five years agreed by businesses and their banks of up to $10m from the scheme, including refinancing of existing loans.
“For example, a reduction in interest rates from 0.3 per cent to 1.5 per cent would be equivalent of $9000 to $45,000 in interest cost savings per year for the average supported firm, based on borrowings of $3m.
“Over the five years the scheme is in place, these savings could total between $45,000 and $225,000 for a firm with an average amount of debt, providing meaningful relief.”
Robertson said more details would be revealed in the next few weeks with the scheme running by the end of July.
“In the meantime, we expect customers will be able to register their interest in looking at utilising this scheme with their bank.
“Different businesses in the same industry, let alone across different industries, have all been affected by these weather events differently, meaning they all need slightly different recovery plans.
“That’s why this scheme isn’t going to be overly prescriptive and instead is about supporting banks and their customers to be able to get loan agreements in place. It is one part of our support for businesses affected by the weather events.”
The Primary Producer Finance Scheme will provide capital for affected growers and farmers unable to access lending without further support, Local Government Minister Kieran McAnulty said.
The funding will go to affected businesses that have a “reasonable likelihood of being commercially viable” but cannot currently access commercial finance.
“Many businesses severely affected by the weather events are likely to be commercially viable with the right support,” McAnulty said.
“This scheme enables the Government to provide concessionary loans and equity finance for land-based primary sector producers up to $4m per business from a pool of up to $240m set aside in total.
“It will provide a way for businesses to fully re-engage with lenders... once we have helped them get back on their feet.”
Horticulture New Zealand chief executive Nadine Tunley said the package had cross-sector involvement and would hopefully relieve stress people were facing.
LeaderBrand’s chief executive Richard Burke said the funding would help them continue to be able to provide jobs.
Robertson said the Government couldn’t pay the full cost of the recovery and rebuild.
The Government had already committed about $2 billion of spending, including $74m in grants to farmers and growers and a $1b flood and cyclone recovery package as part of Budget 2023.
Another $6b in initial spending has been committed for the National Resilience Plan to focus on building back better from the recent weather events, he said.
Former Governor-General to head inquiry into severe weather response
Cabinet has also decided to establish a Government Inquiry under the Inquiries Act 2013 to review the response to the North Island severe weather events.
“It is normal practice for local Civil Defence to review the response to a severe weather event, regardless of size. Given the significance of Hale, Auckland floods and Gabrielle, it is appropriate that a government inquiry is set up. It will be led by former Governor-General Sir Jerry Mateparae,” McAnulty said.
“Affected communities, including rural, Māori and Pacific communities, have raised concerns about communication and support during the response.
“With climate change we are seeing more frequent and complex weather events across New Zealand, and because people’s lives and livelihoods are at stake, it is critically important that our emergency management system is fit for purpose and ready to respond to future emergency events. There are lessons to be learned.
“It is important we incorporate these into our systems so we can continue to improve.”
How the schemes will work:
Loan Guarantee Scheme design elements:
· An 80 per cent Crown guarantee
· A five-year guarantee period, meaning loans issued between 1 July 2023 and 30 June 2024 would be covered by the guarantee for five years from the date of issue
· New and refinanced lending, meaning lenders could refinance existing lending under the guarantee in addition to issuing new loans under the guarantee
· New customers, meaning lenders could offer loans to new customers and refinance lending that borrowers have with other lenders
· Limits to the amount of lending to each borrower of $10 million, (with exceptions on a case-by-case basis), from each lender and across the entire Scheme
· Principled targeting requirements, including that eligible firms must be located in impacted NIWE regions, be classified as having been materially financially impacted, and meet their lender’s credit assessment criteria (ie, that they are lendable)
· A general requirement for lenders to pass on lower interest rates reflective of the benefit provided by the guarantee.
Eligibility criteria for Primary Producer Finance Scheme (Concessional Loans and Equity Injections)
To be eligible, a business must:
· Have incurred losses of 30 per cent or more of their uninsurable productive capacity because of the NIWE
· Demonstrate its loss of viability was due to the NIWE and not a pre-existing issue
· Demonstrate it has a reasonable prospect of returning to viability (i.e. restored positive cash flow) over a reasonable time period
· Demonstrate it has sought and failed to receive lending from commercial lenders and that it does not have access to sufficient capital through other means (eg, through a firm’s own balance sheet capacity). For the avoidance of doubt, a firm would not be immediately eligible for support if it has simply received less financing that it desires from its commercial lender. In these scenarios a bank would have determined that the firm was viable but at a smaller scale and therefore not part of the target cohort.
· Demonstrate that it took reasonable steps ahead of the event to mitigate or avoid losses, such as insuring assets where there are readily available insurance products;
· Demonstrate its commitment to improve resilience to similar risks in the future, such as flood risks; and
· Be a producing land-based primary sector entity, located partially or wholly in the following affected regions: Northland, Auckland, Waikato, Bay of Plenty, Tairāwhiti, Hawke’s Bay, Tararua, Wairarapa (in line with other NIWE-related business support to date).
