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Direct small business loan scheme is now working

Written By: - Date published: 12:06 pm, May 27th, 2020 - 26 comments
Categories: covid-19, Economy, Politics, todd muller, welfare - Tags: ,

It was interesting reading this morning that the updated small business owner loan scheme is now working (unlike the previous loan guarantee through the banks version).

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 $6.25 billion 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.

“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 $960 million of loans, with 95 percent 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 percent of applications have been from firms with 10 or fewer staff and the average loan size has been about $17,300.

There is quite a lot of other detail in the article – but it may be paywalled.

Essentially the COVID-19 Small Business Cash Flow Loan (SBCS) are for businesses with fewer than 50 employees eligible for the wage subsidy. The amounts are $10k, with $1.8k per full-time equiv employee. Loans are for 5 years at a reasonable 3%, but no interest if paid within a year.

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

That result on the targeting means that the money is getting to whom it was targeted at. To qualify

To be eligible for the wage subsidy businesses must declare that they:

  • have had a 30% revenue drop due to COVID-19
  • will retain named employees for at least the duration of the subsidy (12 weeks)
  • will pay named employees, at a minimum:
    • for any work they do at their normal rates
    • at least 80% of income where reasonably possible (for employees working reduced hours while self-isolating)
    • the full subsidy received for each named employee, except where a person’s income is normally less than the subsidy amount, in which case they can be paid their normal salary.

Basically the banks weren’t good at lending this stuff because of their required caution. Even with a government guarantee, this is a still a loan and the banks are always cautious with loans to small businesses. Small businesses belly up frequently and usually within 5 years of starting.

Consequently, businesses in this size range frequently have a fraught relationship with their cautious banks. Indeed they often don’t really have a relationship with a bank at all as a business because they are eftpos or cash businesses or intermix personal and sole trader banking together. Essentially they’re risky to lend to.

But as a group, small business owners are large employers in aggregate. The government has recognized that this is a group where a simple wage subsidy doesn’t help with paying the lease on premises or the power bill or all of the other sundry expenses. The only real pain was the delay in that the delivery mechanism through the banks was a waste of everyone’s time.

But now that the computer systems at the IRD have finally now been brought into the 21st century, the IRD does have the capability to make sure that the accounting for the loaned money is going to be carried out as efficiently and rapidly as possible. With the sources of financial information that they maintain and the computing capacity, they should be able to manage tracking these loans over the years until they are paid back, or rolled into a more usual banking system.

But the IRD can deliver this loan fast to the businesses that need it. After all they know exactly how many staff are paying PAYE at a business and what the business has been declaring in their GST and tax returns. They are the ultimate source of financial probity inside our governmental system and act with a considerable weight of legislated law behind them.

Of course, this does tend to put the tax grifters and piss-poor employers into a invidious position of not being able to rely on this support. But they can always use the ultimate recourse for looking at changes to this and other small business support schemes. National’s new Small Business shadow minister Todd Muller should be all over this between now and the election.

I’ll be looking forward to his musing on the changes in support that the government should be looking to achieve.

26 comments on “Direct small business loan scheme is now working”

  1. ianmac 1

    Perhaps you have already answered Muller's question for today:

    "TODD MULLER to the Prime Minister: When she said yesterday that the Government was “using the tax system to get cashflow to small business”, what did she mean by that?"

    • Cinny 1.1

      Hehehe … todd seems unaware that the opposition does not, as a rule, ask the government patsy questions.

  2. Perhaps he thought they should go through the Bank of China?

  3. Brutus Iscariot 3

    Pretty telling that banks won't lend at all to these people, even with government taking 80% of the risk. Shows there isn't a hope in hell of seeing a penny back. A lot of the businesses will grab all the bonuses, owners extract what they can over the next few months while running the business to zero, then fold (extinguishing the debt). Can always recommence operations under another entity. Dumbarse taxpayer ends up saddled with the bill.

    • Descendant Of Smith 3.1

      That's the trouble with those who see everyone as dishonest – you'd make policy and decisions based on lack of trust. Let's face it – managerial style, performance measurement, bonus systems, health ad safety, propaganda in the guise of training, welfare systems are all based on the principle of lack of trust.

      After all if you are a dishonest shit who would rip someone off (profit to a large extent is dishonest much of the time) then you would see everyone else through the same eyes.

      The government clearly asked us to trust them, in return they are trusting us. It's a two way street.

    • lprent 3.2

      Pretty telling that banks won’t lend at all to these people, even with government taking 80% of the risk.

      Have you ever gone for a loan from the bank with a small business or as a sole trader? Basically anyone with a brain after trying it once will put into the way too hard basket. They spend an age asking for information to assess your viability and almost invariably turn you down.

      If you look at how any small business starts out, they usually mortgage assets, get credit cards, or borrow off friends and family to get started. Then they’re often running for years on the smell of an oily rag. It is only after they get viable (ie roughly when the owners are making minimum wage) that the banks are interested in them – and then usually it is only in the form of an overdraft.

      Dumbarse taxpayer ends up saddled with the bill.

      Which really just shows how much of a totally ignorant dumbarse you are. Small businesses are significiant taxpayers as well, both directly and indirectly.

      Ones in this range of employees directly account for something like 25-35% of all government collected tax revenues. They constitute the majority of company taxes, and a very high proportion of the value add taxes in GST. The variation depends pretty much on the state of the domestic economy, and how many are failing vs how many are starting.

      It gets higher when you look at individuals tax because they pay a large number of employees – who then get taxed.

      The problem for the government and taxpayers is that if too many SME business fail all at the same time in something like a global pandemic, then employment drops precipitously as well. The remaining taxpayers then wind up paying for ‘don’t starve’ support for citizens for years while the businesses re-establish themselves.

      The attitude you’re displaying is one that I characterize as being one of short-term punitive stupidity. That same kind as is evidenced in our social welfare systems (outside of superannuation) where the direct cost of trying to stop people ripping the system off with vindictive rules designed for simple minded nay-saying bigots like you is probably in the order of 3-4x the saved costs. The admin costs of superannuation are about 2-3% of the paid out benefits. The cost of admin things like employment benefits are about 20-30% of the paid out benefits.

      Small-minded dimwits like you who are too stupid to understand basic operational systems are the real cost to taxpayers…

      • Brutus Iscariot 3.2.1

        270m has gone to sole traders. Those are unlikely to be capital intensive businesses. Very easy to just dismantle and set up again once you've milked the system.

        Remember the leaky building fiasco? Noone could be pursued because the builders all just wound up their companies and started new ones.

        • KJT 3.2.1.1

          Dishonest people assume everyone else are dishonest.

          Who woulda thunk it!

          Explains the way National runs welfare.

          And, it was National’s privatised building inspectors, who left councils, and ratepayers, with the costs.

        • new view 3.2.1.2

          BI Wow what a judgmental fuck you seem to be . So we won’t offer the help because a few arsehole businesses abuse the system. Just like some arsehole would be beneficiaries will abuse the system. Grow up. There’s been a real problem here and the loan setup through IRD seems to be working. Great. Good tweek by this Government.

        • Cinny 3.2.1.3

          brutus, you are aware of the different structures of a company v's a sole trader and the resulting financial obligations should the business go bust?

          Because reading your comment it appears you have no idea. JS

        • RedBaronCV 3.2.1.4

          If they are sole traders they may not be trading under a company structure – even though they probably should be. So any walk away is not so easy even if they know how to do this.

          However, as Lprent says they are likely to have credit card and mortgage borrowings and it is highly likely if they are able to, that they will pay this higher rate interest debt down (credit cards are pretty high in the current market) which will help flatten their outgoings while their trading is down and keep them viable.

          • KJT 3.2.1.4.1

            A small business, or sole trader, has to sign personal guarantees, to get any sort of trade credit. It doesn't make any difference if they are a limited company, or not.

            Unless you have an excess of capital to start with. No credit, no supplies for your business.

            If you want to walk away the only option is personal bankruptcy.

            The option that used to be available to cowboys. Putting everything in the wife's name, and scarpering to Australia, is not a goer, at present.

            • RedBaronCV 3.2.1.4.1.1

              A company structure depending on the exact type – has a better chance of walking away from the IRD. Other creditors as you say are usually a lot harder to move on from.

        • Tricledrown 3.2.1.5

          they have to follow the rules of the loan making them personally liable.

        • lprent 3.2.1.6

          Bankrupting sole traders is what the IRD does… They seldom forget taxes owed.

          Remember the leaky building fiasco? Noone could be pursued because the builders all just wound up their companies and started new ones.

          Vividly – my apartment block was one. We extracted our money from the council as they inspected the build.

          Which is why the re-regulation made the council inspectors have to sign off. The role of company directors was made way more legally responsible as well, and the liquidator roles was markedly increased as well in their powers to grab assets to pay creditors.

          Basically, since we managed to get past the dickhead deregulations that National/Act put in to allow avoidance of responsibility, there are way more ways to hold irresponsible business people's feet to the fire. That is why they complain about it all of the time.

          The equivalent here is that the IRD can and do chase defaulters for decades. They make it their trademark for doing it. They have the powers to do it that banks can barely dream of getting. No-one in business ever wants to get the IRD chasing them. It builds a high trust relationship – you can trust the IRD to be fucking irritating if they think you're trying to rip them off.

      • Herodotus 3.2.2

        "They constitute the majority of company taxes, and a very high proportion of the value add taxes in GST."- Not sure I can agree with the GST comment – The GST registered company that is at the end of the supply chain in the sales process to the end user (not GST registered purchaser) is the collector on behalf of the government and passes on the net GST to the government. They don't constitute (as I read your comment) a high proportion of the GST.

        But using the IRD as the distributer is as I see it the most efficient means of doing something like this 🙂

        • lprent 3.2.2.1

          I'd agree with the general statement (they are the collector).

          However I was specifically looking at the value add part. The vast majority of the SMEs are at the very end of the distribution chain, and typically have one of the largest markups.

          GST is a value add tax, and the distributors prior to the 'retail' are typically larger organisations with typically smaller margins. And the margins at the end of the chain are typically percentages on top of all of the markups prior. Not only on the goods themselves but also effectively on all of their costs (power etc).

          The best example to look at this is to look at the classic SME – dairies or superettes. The price charged is somewhat larger than you'll find the same item at a large urban supermarket. Customers pay it for the convenience. If the diary wasn't there, then customers either wouldn't get it (say an ice-cream) or maybe start buying the same thing from a supermarket (lunch?) – with a resulting drop in retail price and therefore GST collected by the government.

          The same applies to the way that I buy computer gear. I can and sometimes do, buy direct from manufacturers. But I’ll buy from a pbtech store because they will have it in stock – and I pay a premium on it because it is already landed in NZ. But I’ve been known to buy from the little computer store up the road at a much larger markup and GST because I need the CPU heat transfer now (when the Standard’s CPU is without its water cooler).

          Value add often means just being present to extract extra money from the customer for timeliness and convenience – it is a significiant part of the tax take for exactly that reason.

    • Tricledrown 3.3

      Those who misappropriate money could find themselves in prison under the terms of the loans.The audit department are going to go through every loan to make sure the rules are being followed.

    • Tricledrown 3.4

      According to a senior lender in one of the big 4 banks they can't get loans out the door fast enough.The govt gave the Banks $60 billion they don't make money by not lending.

    • Dave 3.5

      Hello everyone

      I am thankful for this loan and will pay it back.

      It's provided help when needed.

      Dave

  4. Jackel 4

    I'd give the government a better mark than perhaps they with typical kiwi modesty give themselves. Day to day life is returning to normal, demand is returning to the economy, the virus is eliminated though still a threat and adequate support systems are in place. But we must remain vigilant particularly with measures of border control. Well done.

    • Graeme 4.1

      Looking around Queenstown you'd thing we were back to normal, normal traffic, including the commuter jams at 8 and 5.

      And tourism is slowly coming back to life, a few flights going into Milford and some of the hotels open. But generally the tourist side is dead. But it's normally the depths of the off season right now, we'll see what happens this weekend, and when the skifields open, but not much sign of that yet, mountains are still very green.

      I've seen it a lot quieter here at this time of year in 'normal' times.

  5. greywarshark 5

    Grameen Bank* – small bank loans to micro-business would be right to adopt now.

    The big boys and girls in government have to learn to think in mill/billions. The individual working 40 hours a week is on borrowed time, a full working week on a living wage can't last long in this disruptive financial world. And even working at 40 hours, they may receive less than one of the urbane high-culture professionals receives an hour when on some special contract.

    Small things amuse small minds it is said. So small loans will please small people and will make great effect in their lives and their enterprises which have taken the place of regular jobs at living wages. Small loans to hard workers would enable some social mobility which seems to be a forgotten plank in the political discourse these days. We've got it, you haven't, suck it up being the usually unspoken attitude.

    *Grameen Bank (Bengali: গ্রামীণ বাংক) is a microfinance organisation and community development bank founded in Bangladesh. It makes small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral. https://en.wikipedia.org/wiki/Grameen_Bank

  6. Frank the Tank 6

    You'll only know whether the loan is working by mid July when the cash flow hole for businesses will be peaking (I can explain this in need if you want). Till that point all you have is an uptake with the prognosis unknown. Kinda like using hydroxychloroquine to treat Covid-19.

    However based off what I know I think you'll find this will be an epic fail. There is a reason why bank's didn't want to take up these loans (including Kiwibank)…….

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    2 days ago
  • New Zealand to review relationship settings with Hong Kong
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    3 days ago
  • Funding for Whangārei’s infrastructure projects revealed
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    3 days ago
  • Managed isolation and quarantine update
    Following a second incident in which a person escaped from a managed isolation facility, security is being enhanced, including more police presence onsite, Minister Megan Woods said. “The actions of some individuals who choose to break the very clear rules to stay within the facilities means that more resourcing is ...
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    3 days ago
  • Funding for Kaipara district community waste programmes
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    3 days ago
  • Government will support the people and economy of Southland
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    3 days ago
  • New transformational tools for the Predator Free 2050 effort
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    3 days ago
  • New Armoured vehicles for New Zealand Army
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    3 days ago
  • Community-led solutions to prevent family violence
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    3 days ago
  • Govt confirms investment in better radiology and surgical services for Hawke’s Bay
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    4 days ago
  • Specialist alcohol and drug addiction services strengthened across New Zealand
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    4 days ago
  • Coastal Shipping Webinar
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    4 days ago
  • Support for resilient rail connection to the West Coast
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    4 days ago
  • Major investment in safe drinking water
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    4 days ago
  • Supporting stranded seasonal workers to keep working with more flexible options
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    4 days ago
  • Relief for temporary migrants, employers and New Zealanders who need work
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    4 days ago
  • Freshwater commissioners and fast-track consenting convenor appointed
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    4 days ago
  • Appointment of Judge of the High Court
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    4 days ago
  • Feedback sought – Commercial Film and Video Production Facilities
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    5 days ago
  • Govt launches bold primary sector plan to boost economic recovery
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    5 days ago
  • Wellbeing of whanau at heart of new hub
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    5 days ago
  • New Report on Auckland Port Relocation
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    5 days ago
  • Dual place names for Te Pātaka-o-Rākaihautū / Banks Peninsula features
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    5 days ago
  • Government and Air New Zealand agree to manage incoming bookings
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    5 days ago
  • $80 million for sport recovery at all levels
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    5 days ago
  • Keeping ACC levies steady until 2022
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    6 days ago
  • Extended loan scheme keeps business afloat
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    7 days ago
  • New investment creates over 2000 jobs to clean up waterways
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    7 days ago
  • Speech to Labour Party Congress 2020
    Tena koutou katoa  Nga tangata whenua o tenei rohe o Pōneke, tena koutou Nau mai, haere mai ki te hui a tau mo te roopu reipa Ko tatou!  Ko to tatou mana!  Ko to tatou kaupapa kei te kokiri whakamua  Tena koutou, tena koutou, tena tatou katoa   Welcome. I ...
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    7 days ago
  • PGF top-up for QE Health in Rotorua
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    1 week ago
  • Building a more sustainable construction sector
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    1 week ago