Got 50 staff or less? Government loan deal

There has been a lot of criticism of the government backed loan scheme that was announced last month.  Particularly, many small and mid-sized businesses have found them difficult to access.  The government has responded by opening another avenue for businesses to borrow.  Directly off the government.

Here’s the rub:
Businesses with 50 or fewer full-time equivalent employees can apply for a loan of $10,000 + $1,800 per employee.  This means if you are in business by yourself, you could borrow $10,000 + 1 x $1,800 = 11,800.  If you have 10 staff, you could borrow $10,000 + 10 x $1,800 = $28,000.  Or 50 staff, $10,000 + 50 x $1,800 = $100,000.

At the moment, this is what they look like: interest free for the first year, then go up to 3% thereafter.  They can be taken for a term of up to 5 years and repayments won’t be required for the first 2 years.

The government has stipulated that these loans can be used for operating costs (rent, paying suppliers etc), but not for paying to shareholders or owners.  The businesses have to be ‘viable’, and while it hasn’t been clarified exactly what that means, The Minister of Finance did point out that IRD (who will be administering these loans) holds a lot of info on businesses, so we expect it might be a bit harder if you haven’t been very good at paying your tax on time.

Applications will open on the 12th of May and at this stage, they will be open for 1 month.  They may be available for longer, but they may not.  So, if you think that you might need a little extra cash ‘shot in the arm’ we suggest applying for the loan and squirreling it away for a rainy day.  If it turns out that you don’t need it, you can repay it in 12 months’ time without having to pay interest on it.

Details on how to apply will follow as soon as they are released.  The one detail that we do have is that applications WILL go through IRD’s myIR platform.  If you don’t have a myIR login for your business, here is a video clip of how to set one up.

Since we are talking about government backed loans…
Finance Minister Grant Robertson took a swipe at the banks last Friday for not pushing the government backed loans.  He also has taken some steps to make them more accessible to businesses.  The lower turnover limit has been removed, meaning smaller businesses can now apply.  Likewise, the requirement for general security agreement has been removed – although the banks may still choose to demand one.

It hasn’t yet been long enough to see how the banks will respond.  But if you had inquired about a government backed loan from your bank and decided it was all a bit hard, it might be worth another crack.

UPDATE: Further info has been released on how to apply for the small business cashflow loan, for more watch here.

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