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The Government is changing the rules around its Commercial Financing Guarantee Plan so that more companies qualify for bank loans underwritten by taxpayers.
Early Friday morning quietly announced two significant changes to the scheme, through which taxpayers subscribe 80% of bank loans to eligible companies.
Agricultural companies, which were previously excluded from the scheme, will now be included.
Agricultural loans represent around 14% of bank loans. 65% of this segment is for dairy, which is considered relatively high risk.
Second, the government is removing the requirement for a “general security agreement” under the scheme.
This means that for a loan of more than $ 50,000, a bank will no longer have to “obtain security from the borrower under a general security agreement.”
However, banks can still require companies to provide security, if they so choose.
Late Friday afternoon, the Treasury announced new changes to the Trade Finance Guarantee Scheme.
Smaller companies will now also be able to access loans under the scheme, as the requirement that companies have had a minimum turnover of $ 250,000 in fiscal year 2019 has been removed. The upper limit of $ 80 million remains in place. .
Borrowers will no longer have to resort to all the existing facilities provided by their bank before applying for a loan under the scheme.
The term of temporary installations that can be refinanced in the scheme has been extended from 90 days to 180 days.
And the date from which customers should not have been on banks’ watch lists has changed to January 31, from February 28, recognizing that some companies were impacted by COVID-19 before others (by example, forestry).
Real estate development and real estate investment are among the companies that are excluded from the scheme.
Finance Minister Grant Robertson in March earmarked $ 6.25 billion for the scheme.
He was unable to provide interest.co.nz details on how much additional risk taxpayers are taking as the scheme expands.
Banks: long-term useful business financing guarantee scheme; banks that meet immediate needs now
The business financing guarantee scheme is different from Small Business Cash Flow Loan Plan, presented on Thursday and detailed on Friday. Under this scheme, the Government will grant loans to small businesses directly through internal revenues.
Robertson said the Business Finance Guarantee Plan does not fully meet the needs of companies or the expectations of the Government.
Companies have complained that they are struggling to get loans under the scheme.
However, New Zealand Bankers Association CEO Roger Beaumont noted that the scheme is useful in helping companies meet their long-term needs.
“For immediate business needs, banks have loaned $ 6.1 billion to businesses since we closed control on March 26,” he said.
“That’s loans outside of the Commercial Finance Guarantee Plan. And it’s almost as much as the total limit on loans under the scheme.”
However, Beaumont welcomed the changes to the scheme, saying they are coming “as a result of comments from the industry.”
“We hope this means that more customers can participate in the scheme for their long-term needs.”
Beaumont didn’t find out about the changes until just before Robertson announced them.
Robertson said: “Further changes to the scheme will also be considered to ensure that it plays a useful role in providing support to companies.”
