COVID-19: Every small business in New Zealand now entitled to $10,000 interest-free loan

Business with 50 employees or less are now entitled to an interest free loan of $10,000, and depending on the size of the business, the loan could be extended to as much as $100,000. 

The Small Business Cashflow Scheme loans can be used for core business operating costs, such as rent, insurance, utilities or rates, and will be available for any business with the purpose of remaining open during the COVID-19 crisis. 

The scheme will provide a base $10,000 loan to every company and an additional $1800 per full time employee, so a sole trader would get the base $10,000 plus $1800, leaving them with an $11,800 interest free loan. 

A business with 50 employees would also get the base $10,000 loan, but would also get $90,000 as per the $1800 per worker, and so the total loan would be worth $100,000. 

"It has become clear that the support that is available to our small and medium businesses from banks is not meeting their needs nor our expectations as a Government," Minister of Finance Grant Robertson said. 

"That is why we have moved to provide this scheme to give some much needed cashflow."

It's important to note that the loans will only be interest free if they are paid back within a year. The interest rate will be 3 percent for a maximum term of five years; however, repayments are not required for the first two years. 

The eligibility criteria for the loans is the same as the wage subsidy scheme, where business must prove a 30 percent drop in income because of COVID-19. That scheme has so far paid out about $12 billion subsidising the wages of about 1.6 million New Zealanders. 

Businesses will also have to declare that they are a viable business and that they will use the money for core business operating costs and enter into a legally binding loan contract.

"We are committed to sharing the burden of the impacts of COVID-19. As a responsible Government we must ensure we are using taxpayer money carefully as we provide support for business," Robertson said. 

"We understand the importance of getting this money to businesses as soon as possible."

The scheme will be administered by Inland Revenue who will be taking applications from May 12 in about two weeks, and will pay out shortly thereafter.

But if things don't improve in the business world, the Government runs the risk of New Zealanders defaulting on their loans, as ANZ and mortgage brokers are warning more Kiwis will default on their loans like mortgages in the months to come. 

What else has the Government done?

A significant package of tax reforms was passed in Parliament on Thursday giving Inland Revenue the ability to change due dates and timeframes for tax returns for taxpayers affected by COVID-19, among other tax changes. 

It sits alongside the $6.25 billion Business Finance Guarantee scheme which leverages the Government's balance sheet. It allows banks to offer large loans with the Government guaranteeing 80 percent of the risk and banks 20 percent. 

The scheme allows businesses with annual revenue between $250,000 and $80 million to apply to their banks for loans up to $500,000, for up to three years. Although some businesses have complained that banks have been tight. 

Robertson also recently announced new rules allowing COVID-19-affected businesses to temporarily place existing debt into "hibernation" until they are able to start trading normally again, with the agreement of 50 percent of their creditors.