Changes to the Business Finance Guarantee Scheme

Friday, September 11, 2020

It has been six months since New Zealand entered Alert Level 4 lockdown and New Zealand businesses continue to grapple with the stress and financial uncertainty wrought by COVID-19. The recent resurgence of COVID-19 in New Zealand and changes to COVID Alert Levels has compounded the uncertainty faced by many small to medium-sized businesses.

If your business is one of the many New Zealand businesses impacted by COVID-19, recent changes to the Government’s Business Finance Guarantee Scheme may be of interest to you.

The Business Finance Guarantee Scheme was introduced in April 2020 as part of the Government’s COVID-19 response. The scheme is offered by the Government alongside participating private banks. The scheme encourages banks to lend where otherwise they may not by offering an 80% Government guarantee over loans issued under the scheme.

Following relatively low uptake, the Government announced changes to simplify and expand the scheme in August 2020. These changes provide more flexibility to banks – extending the eligibility criteria for loans, how much can be borrowed and what the loans can be used for.

The key changes are:

  • The maximum loan limit has increased from $500,000 to $5 million.
  • The maximum term of loan has increased from three years to five years.
  • The scheme now allows general purpose borrowing, including capital investment, operating cashflow needs and project funding for businesses affected by COVID-19. This means that businesses can now use loans provided under the scheme to buy assets.
  • Loans can also be used to re-finance up to 20% of a borrower’s existing indebtedness.
  • More businesses can access these loans with revenue limits extended from $80m to $200m per annum.
  • Although banks make their own lending decisions and can set their own requirements, the Government has made it clear it does not require a personal guarantee in order to pay claims in the event of a default.

The scheme is open for applications until 31 December 2020.

Participating banks are ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac.

Your bank will assess if your business is eligible and you will need to meet their lending criteria and processes. Under the rules of the scheme, to be eligible to apply for bank credit using the Business Finance Guarantee Scheme your business must:

  • Be a New Zealand based business. This includes companies, sole traders, companies, partnerships or trusts which are resident in New Zealand for tax purposes.
  • Have annual revenue of $200 million or less in its most recently completed financial year.
  • Not be on your bank’s credit watchlist as at 31 January 2020 (for retail customers) or 30 September 2019 (for non-retail customers).
  • Not be a residential or commercial property developer or investor, or a local authority, council-controlled organisation or council organisation for the purposes of the Local Government Act 2002.

We encourage you to speak directly with your bank to find out if the Business Finance Guarantee Scheme is an option for your business. Our team can assist you with this process. Please contact our Banking & Finance or Corporate & Commercial teams for further assistance.


Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose. While we make every effort to ensure the accuracy of the information contained in this article, this is a rapidly changing environment and the information will be subject to change.

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