Debt collection in NZ has slowed down in the past year, which also adversely affected the cash flow of many businesses. As more businesses outside of Auckland continue to struggle financially due to lockdowns, the New Zealand has government rolled out the following programs to help revive small- and medium-sized businesses and allow them to thrive in an uncertain economic environment:
- small business cash flow loan scheme (SBCS)
- business debt hibernation
- business finance guarantee scheme
Small business cash flow loan scheme
Without a doubt, COVID-19 has severely impacted business cash flow. To provide support, the NZ government will give a one-time loan of up to $100,000 to small businesses that have been impacted by COVID-19. Sole traders and the self-employed are also eligible to receive these loans.
The loan includes $10,000 that eligible businesses will receive, plus $1,800 per equivalent to full-time employees. SMEs will have until 31 December 2023 to apply for the cash flow loans. The government does not require the small businesses that owe money to repay the loan for the first two years. However, if the small business repays the loan within 2 years, there will be no interest added. The credit contract provides for a 3% interest rate for a maximum of five years.
According to the government website, businesses can refuse to accept the full amount offered. They can take a smaller loan should they already have outstanding debts that need to be paid.
Business debt hibernation
Debts may have piled up in the past months and it might have been difficult collecting debt from creditors. The government initiated the debt hibernation initiative to help businesses manage their debts if they have not yet contacted a debt collection agency in New Zealand. The initiative is for companies, trusts, and other businesses, including small businesses.
Applications for this initiative are open until 31 October 2021. Under this initiative, the business sets up a scheme to pay off their existing debts. Creditors cannot enforce their debts up to a month while you set up the payment arrangement. Subject to your creditors’ agreement, the protection can stay in place for six more months. This support is helpful if you want to avoid credit reporting that could possibly damage your business reputation.
Business finance guarantee scheme
Under the Business Finance Guarantee scheme, the NZ government rounded up lenders to provide much-needed cash aid to struggling SMEs. Aside from applying for new loans, eligible SMEs can also ask participating lenders (both bank and non-bank) to increase the limits of existing loans or revolving credit.
As support, the government is taking on the default risk of up to 80% of the loan. The Crown clarified though that it will guarantee its share of a scheme loan without a personal guarantee. The government reminds lenders that they can ask for other requirements, including personal guarantees from borrowers. SMEs can get only up to $5m from bank lenders and only up to $3m from non-bank lenders such as invoice finance providers.
As this program is a response to the impacts of COVID-19, the borrower may use the additional loan to modify business premises to comply with safety protocols or meet changing consumer demands.
Other available government support
Other forms of support from the New Zealand government available for SMEs include the Resurgence Support Payment, Wage Subsidy Scheme, Short-Term Absence Payment, Leave Support Scheme, Tax and ACC support, and COVID-19 Consumer Travel Reimbursement Scheme. You can read more details of these programs are found on this Business New Zealand page.
Seek aid before it is too late
We at Slater Byrne New Zealand acknowledge that the past year has been extremely difficult for businesses, not only because of the global health crisis but also because of the uncertainty of when operations may return to normal. The debt collection process in NZ has slowed down, which also subsequently slowed the return of cash flow needed to sustain business operations.
As these government support are only in aid to SMEs, they are not solutions that can help your business avoid insolvency. If you are a New Zealand business facing financial uncertainties, we are a phone call away for an obligation-free chat to discuss what actions you can take to save your business.