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).
Jenny Ruth at BusinessDesk are reporting “Govt’s new small business loan scheme lends nearly $1b“
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.