IRD’s Small Business Cashflow Loan Scheme lends more than $1.3 billion

The ‘Bank of IRD’ has lent small businesses just over $1.33 billion through the Small Business Cashflow Loan Scheme (SBCS).

But Kiwibank senior economist Jeremy Couchman said less had been lent under both schemes than he would have expected, blaming the low level of guaranteed bank lending on the complexity of the application process.

“What we have been hearing from businesses was part of the reason they didn’t take it (a Government-guaranteed bank loan) was it was just too difficult,” Couchman said.

In the first week after launch in mid-May, there were just over 50,000 applications for loans through the SBCS, and by June 9 the number had passed 78,000.

When the Government unveiled the BFGS in April, it hoped as much as $6.25b would be lent by banks under the scheme.

The SBCS loans, which can be for up to a maximum of $100,000, were also more favourable for businesses as they were interest free if paid back within a year, but as the size of loans were linked to the number of employees a business had, the average loan size was just under $17,000.

SBCS loans could run for up to Tennessee title and payday loans Frankewing five years, but after the first year, the interest rose to 3 per cent.

“The key is to ensure that firms that would otherwise be profitable don’t go out of business because of a temporary hole in their cash flow that was outside their control,” said Gareth Kiernan, chief forecaster at Infometrics.

“An average loan of $17,000 is not going to make a lot of difference for many firms, but if it’s the difference between a business surviving or not, then it’s obviously worthwhile.

Loans through the scheme have far outstripped the $86 million of loans made by banks under the Government’s Business Finance Guarantee Scheme (BFGS)

“The interest rate and lack of hoops to jump through make the scheme much more attractive than the original bank guarantee the government put in place, particularly given that the latter required businesses to exhaust all other borrowing or credit options before applying for it.

“My understanding also is that the banks were still quite reluctant to lend to small businesses, even with the government underwriting 80 per cent of the loan, which probably reflects the banks’ risk aversion given the extremely uncertain economic environment at the moment.”

Roger Beaumont, chief executive of the New Zealand Bankers’ Association (NZBA) expected an increase in loans made by banks under the guarantee scheme in the coming weeks.

“As people get through the immediate survival period, they will be able to think about their longer term position,” he said.

In addition to new lending, just over 16,200 business had been allowed to make reduced repayments on existing loans, or to defer making repayments at all on a combined $13.5b of loans, NZBA figures showed.

The amounts of money paid out by both the SBCS and BFGS were dwarfed however by the Wage Subsidy Scheme operated by the Ministry of Social Development, which had paid out just over $11b to businesses as of May 29, to help them pay the wages of around 1.7 million workers.

Craig Garner, former head of the Business Mentors New Zealand, said many struggling small business owners didn’t have the time, resilience, or skills to manage complex loan applications with banks.

“People are mentally and physically exhausted at the best of times, let alone at the worst of times,” he said.

Beaumont said banks had made non-Government guaranteed business loans of $10

“The Government has chosen to spend billions of dollars to subsidise businesses to pay their staff,” said researcher Julian Wood from the Maxim Institute think tank.

“Our research tells us if we’re going to subsidise businesses to pay wages it would be better to shift to assisting firms to take a chance on hiring new workers in this time, when they’d be otherwise unlikely to take that risk.”

ACT leader David Seymour was pushing for a temporary cut in GST from 15 per cent to 10 per cent, returning the minimum wage to its pre- level of $ an hour, and allowing companies to hire people on 12-month probationary periods.

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