Business finance guarantee scheme

Information on the Business finance guarantee scheme for businesses affected by the economic impacts of COVID-19.

The Government, retail banks and the Reserve Bank announced a major financial support package for businesses and home owners affected by the economic impacts of COVID-19.

Business finance guarantee scheme

Government has launched a business finance guarantee scheme for small and medium-sized businesses, to protect jobs and support the economy. The Crown, in partnership with participating approved banks, will support targeted new loans (including increases to existing limits) to eligible businesses, as a response to difficulties caused by COVID-19.

Government is guaranteeing 80% of the risk, while the banks are covering the remaining 20%. A normal lending process will be followed by the banks, which will make the lending decisions. Further details can be found on the banks' websites.

More information on the announcement can be found at Beehive.govt.nz.

Business finance guarantee – applications open (external link) — Beehive.govt.nz

More information about updates to the scheme can be found at treasury.govt.nz

Business finance guarantee scheme updated (external link) – Treasury.govt.nz

About the business finance guarantee scheme

Government and the banks are implementing a $6.25 billion business finance guarantee scheme for small and medium-sized businesses, to provide finance to protect jobs and support the economy.

The scheme supports the provision of new bank loans to viable businesses by the Government taking on the default risk up to 80% of the loan. Borrowers are still liable and must pay the debt back, with interest, in the usual way.

The government guarantee does not limit the borrower’s liability for their debt, and only applies to any shortfall the bank has, after it has exhausted all normal avenues to recover the debt in the event of a default by the borrower.

After working with banks and hearing from the business sector, updates were made on May 1 2020 based on feedback received. More updates may be made in the future to further improve the scheme.

Your bank will decide whether a new loan can be supported under the scheme through its normal credit assessment process. Your bank will also take into account your circumstances due to Covid-19.

I own a business – am I eligible?

To be eligible to apply for a loan under the scheme your business must be New Zealand-based, with annual turnover of up to $80 million, not on your bank’s credit watchlist as at 31 January 2020, and not engaged in excluded activities (see below).

Updates made to the scheme announced on 1 May 2020 mean it is now available to more businesses than previously. These changes included:

  • removing the $250,000 lower revenue limit, effectively including more small businesses,
  • including farmers within the scheme, and
  • moving the date that customers must not be on a banks watchlist from 28 February to 31 January, recognising that some companies were impacted by COVID-19 earlier than others (e.g. forestry).

The updates also make the scheme more flexible, achieved by:

  • Customers will not have to draw down all existing facilities before applying. Once they’re on a trajectory to need the Business Finance Guarantee Scheme, they can make an application.
  • The term of temporary facilities that can be refinanced into the scheme has been extended from 90 days to 180 days.

Your bank will decide whether your financing can be supported under the scheme through its normal credit assessment process. Your bank will also take into account your circumstances due to Covid-19.

Is the business finance guarantee scheme a grant?

No. The scheme supports the provision of new loans to businesses through a participating bank. Any loans will need to be repaid with interest, in the usual way.

When will the scheme be available?

Customers are able to apply to the banks now. Details are on each individual banks’ website.

Can I defer payments?

The repayment schedule and commercial terms will need to be agreed with your bank. Your bank will clearly explain to you the repayment terms for these loans.

How do I apply?

Talk to your bank to discuss your financing needs. They will advise whether your financing can be supported under the scheme. Details are on the banks’ websites.

Who decides if my business qualifies for the loan?

Your bank will decide whether you can access finance under the scheme. To see if you qualify for a loan, your bank will follow its normal credit assessment process. This process will be modified to enable the bank to give effect to the scheme and to allow the bank to look through the economic cycle to sensibly take account of the uncertainty of the current economic conditions caused by COVID -19.

How much can I borrow?

The facility limit for an individual loan will be a maximum of $500,000. However, the maximum amount your bank is prepared to lend to you will be determined by your bank.

What can loans be used for?

The loans are intended to provide for businesses’ current and up-coming operating cash flow needs including things like rent and staff expenses. See also: What will the loans not fund? below.

What are the interest rates for the loans?

Interest rates will be determined by the banks under their normal lending criteria.

What is the criteria for the loan?

Loans will be provided by banks to businesses that have urgent liquidity and bridging finance requirements caused by disruption to business as a result of COVID-19. See also: What loans will not be funded?

Is the Government guaranteeing the loan?

No. You will need to provide security for the loan as you would normally. The Government and participating banks have agreed to share the risk in case of default only.

What kind of security do I need to provide for the loan?

While banks remain in control of their own lending decisions and may have their own requirements, the Government original expectation that lending over $50,000 would require a general security agreement has been removed.

If the Government is guaranteeing the loan, why do I need to provide security?

The Government Guarantee does not limit the borrower’s liability for their debt.
The Government Guarantee only applies to any shortfall the bank has, after it has exhausted all normal avenues to recover the debt in the event of a default by the borrower.

Can I have both a Small Business Cashflow loan and a Business Finance Guarantee loan?

The schemes are complementary. Businesses should evaluate each scheme against their specific needs. The Government has funded specialist consultancy support services to provide advice to businesses who need it. You can use the Boost tool to find out what services are available in your region.

Kiwi Business Boost (external link)

What will the loans not fund?

A supported loan will not be available to fund:

  • capital assets/projects other than business as usual expenditure which does not exceed 5% of the principal amount of the loan
  • dividends to be distributed outside the Borrower’s guaranteeing group
  • re-financing existing debt advanced before March 16th
  • on-lending outside the Borrower’s guaranteeing group, or
  • excluded activities (see below).

Activities excluded from the loan scheme:

  • property development and property investment
  • manufacture of cluster munitions civilian automatic, semi-automatic firearms, magazines or parts and anti-personnel mines
  • manufacture or testing of nuclear explosive devices (NEDs)
  • manufacture of tobacco
  • processing of whale meat
  • recreational cannabis
  • any other activity notified by the Crown in writing to the Approved Banks, with the effect from the date of that notification (or such later date as set out in the notification).

How long do I have to repay the loan?

Supported loans are limited to a maximum term of three years. However, the exact terms of individual loans will be determined by each bank.

What happens if I am unable to repay the loan?

Borrowers are fully responsible for repaying the loans under the scheme. If Borrowers default on payments, banks will follow their usual default processes.

Which banks are participating?

All New Zealand registered banks are eligible to apply to join the scheme. Banks currently participating include ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, The Bank of China and Westpac.

Is the scheme available through other lending institutions?

To establish the Scheme at pace, initial applications were limited to New Zealand registered banks as they are directly supervised by the Reserve Bank of New Zealand (NBDTs are primarily supervised by their Trustees). The Treasury are now considering whether the scheme could be opened up to other participants.

Can I apply directly to the government for a loan?

No. Applications for a loan under the scheme must be made to a bank that is participating in the scheme.

What if my bank declines my application – where else can I get support?

Government has introduced a range of measures to support businesses and individuals. More information on support available is available at uniteforrecovery.govt.nz.

Financial support for businesses (external link)  — uniteforrecovery.govt.nz

What is the time period for applying for a Supported Loan?

Loans will be available under the scheme until 30 September 2020.

If customers default, how much of the loan amount is paid to the banks?

The Crown will pay 80% of any loss incurred by a bank on a loan it makes under the scheme, after the bank has completed its normal enforcement procedures.

How will we ensure banks are complying with the terms?

The Treasury will have oversight of participating banks compliance through a robust monitoring and reporting process.

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