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Small businesses could apply for between $ 15 billion and $ 20 billion of low-interest, low-interest loans from the government, according to a “backwards” calculation made by the Union of Taxpayers lobby group.
Small businesses battling the coronavirus pandemic will be able to borrow up to $ 100,000 under a new “small business cash flow scheme” announced by the government.
Finance Minister Grant Robertson said it had become clear that the support banks were providing to small and medium-sized businesses “did not meet their needs or our expectations as a government.”
He did not say how much he expected the loans would cost the government, indicating that this would depend on acceptance.
A spokeswoman for Revenue Minister Stuart Nash also did not disclose whether any estimates of the probable value of the loans or the cost of the scheme had been prepared for the Cabinet, repeating only that those figures would be difficult to quantify.
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But Taxpayer Union chief executive Jordan Williams predicted the scheme would involve “a lot of money” roughly equivalent to the $ 16b student loan scheme.
The commercial loan scheme received qualified support from business groups.
But Williams described it as the “worst policy ever seen in our lives” and said it would leave taxpayers exposed to “enormous financial risk.”
“Any company with any loan, let’s say paying 15 percent to finance a vehicle, will take this money and transfer the risk to the taxpayer.”
Not for syndication
The law that paves the way for small business IR loans also allows the tax department to convert a portion of loans to grants, with no tax consequences for recipients.
The small business cash flow plan will be administered by Inland Revenue and will be available to companies that employ 50 or fewer employees, and applications will be opened on May 12.
The loans will be used to meet companies’ “immediate cash flow needs” and their fixed costs.
Most companies that can borrow will be $ 10,000 plus an additional $ 1,800 for each full-time employee they have, so only companies that employ 50 employees could apply for the maximum of $ 100,000.
Loans will have no interest if they are repaid within one year.
Otherwise, interest will be charged at 3 percent per year up to the maximum total term of five years.
Ricky Wilson / Things
Revenue Minister Stuart Nash says the goal will be to help “viable” companies.
Refunds will not be required for the first two years, Robertson said.
Eligibility criteria will be the same as for the wage subsidy scheme, meaning the loans will also be available to freelancers, including individual merchants, who will be able to borrow up to $ 11,800.
“All who apply for a loan will have to declare that they are a viable business,” said Robertson.
“Obviously, Inland Revenue has a lot of information about companies, so it’s reasonably easy for people to do that research.”
Companies would have a month to apply for the loans from the opening date, but that deadline could be extended, he said.
Nash said the government was targeting the scheme at businesses that had “a viable business but had put themselves in a position of not generating any income.”
The intention to establish the small business cash flow loan scheme was revealed in bill Covid-19 (Taxes and other urgent regulatory measures) that was urgently passed on Thursday.
But the ministers did not reveal details of what it would provide until Friday.
The tax bill states that loans must be repaid, but an explanatory note in the legislation says that if a portion of the loan becomes a “grant,” that will have no adverse income tax implications for the applicant.
This suggests that the Government expects that a certain amount of money borrowed by IR under the scheme will not be repaid and canceled.
Not for syndication
National Party finance spokesman Paul Goldsmith said specific cash grants would have been a better direction.
Robertson said the change in law paving the way for the loan scheme was mistakenly included in the tax bill that was presented in Parliament, due to a mistake by the Parliamentary Advisory Office.
National Party finance spokesman Paul Goldsmith said the government “of course” would have an estimate of the value of the loans it hoped to obtain under the scheme and that it should disclose that information.
Offering grants with more specific objectives would have been “a better direction” for the government to take, he said.
“There are many companies that will be wary of borrowing more right now, no matter how cheap the money is, and what they need is to get out of the shutdown as soon as possible.”
“Second, there is a good argument for highly targeted cash grants to those who are directly affected.”
Rodney-Times
Auckland Chamber of Commerce chief executive Michael Barnett says he would have preferred grants, but the loan scheme is welcome and “better late than never.”
The fact that the change in the law paving the way for the loan scheme was mistakenly included in a bill and thus passed without scrutiny by MPs was “problematic,” Goldsmith said.
“What we are left with now is a desire to gain more clarity about what they are doing to ensure that the right people have access to this money and that taxpayer dollars are spent wisely.”
National Party economic development spokesman Todd McClay said all the new scheme would do is “take the debt accumulated in the past six weeks and move it to one side.”
“Australia provided instant cash flow subsidies to companies around the world, which has allowed many to continue operating.”
Auckland Chamber of Commerce Chief Executive Michael Barnett said he would have preferred grants over loans, but the loan scheme was welcome and “better late than never.”
“Cash flow is the biggest problem for the 500,000 small and medium-sized businesses blocked and excluded from their businesses during Tier 4,” he said.
“They have rents to pay and overhead that won’t go away, and the last thing they need to do is borrow more, no matter how attractive the offer may seem.
“I hope the government will play a long game … and consider forgiving debt to build recovery and confidence to revitalize the business to create and maintain employment in the community,” he said.
Wellington Chamber of Commerce chief executive John Milford said interest-free loans are the right support for the government to offer.
“It will give companies a break as they plan for their recovery.”
The-Dominion-Post
Wellington Chamber of Commerce Chief Executive John Milford says interest-free loans are the right choice.
The small business cash flow loan scheme is separate from the Government’s business finance guarantee scheme under which the Government agreed to guarantee up to $ 6.25b of regular small business bank loans.
Unlike loans offered by banks under the commercial finance guarantee scheme, loans made through Inland Revenue were a “100 percent government loan scheme,” said Robertson.
But the government would also amend the business finance guarantee scheme, eliminating the need for companies to offer the government security on those loans and to have withdrawn all their other loan facilities before submitting the application, he said.
The Bankers Association responded to Robertson’s comment that the banks had not met the government’s credit expectations, saying that the banks had loaned $ 6.1 billion to companies since the country closed on March 26.
“That’s loans outside of the business finance guarantee scheme and it’s almost as much as the total loan limit under the scheme,” said spokesman Philip van Dyk.
It seemed to suggest that the rules surrounding the corporate finance guarantee scheme had limited its acceptance.
“We welcome the Treasury, which simplifies its outline rules, as a result of industry comments.
“We hope this means that more clients can participate in the scheme for their long-term needs,” he said.
