COVID-19: Small Business Cashflow Loan Scheme

The Government has announced further improvements to the Small Business Cashflow (Loan) Scheme - 18 December 2020

After previous announcements that the Small Business Cashflow (Loan) Scheme (SBLS) would be extended until 31 December 2023, and the interest free period extended from one year to two years, on 18 December further changes were announced to enhance the scheme.

The scheme will now be open to more businesses and there will be revised eligibility criteria. In addition, businesses will be able to draw down a loan multiple times. These latest changes will take effect in February 2021.

The SBLS loan opened for applications on 12 May 2020 and since then Inland Revenue has been inundated with applications. As of 18 December, 100,795 businesses across a wide range of industries have drawn down a loan, with total lending of $1.644 billion.

From February 2021, to be eligible for the SBLS a business will need to meet a number of criteria, including:

  1. The business must have existed for six months;
  2. The businesses must be able to demonstrate they have experienced an actual drop in revenue of at least 30 per cent because of COVID-19, over any 14-day period in the previous six months, compared with the same period a year ago. Or for businesses which are less than a year old, the revenue drop can be experienced in comparison to the previous month;
  3. The business must have 50 or fewer Full-Time Equivalent (FTE) staff (combined with any other commonly owned businesses);
  4.  The business must be ‘viable’.

How much can be borrowed?

The maximum amount of funding that can be received from the SBLS is a $10,000 base loan plus $1,800 per FTE employee with a maximum loan of $100,000.

A calculator to assist businesses in determining the amount they are eligible to apply for has been developed by Inland Revenue and can be accessed here.

What is a ‘viable’ business?

To be eligible for the SBLS loan, the business needs to be viable and have a plan to ensure it remains viable. This could include the directors or owners having good reason to believe it is more likely than not the business will be able to pay its debts as they fall due within the next 18 months. It is essential to document why the business is viable as Inland Revenue will be auditing applications. Inland Revenue suggests the following examples of evidence that business should consider keeping:

  • A cash-flow forecast for the business or organisation for the short term.
  • A plan for where revenue will come from in future market conditions, and a forecast of those revenues.
  • Financial statements showing the business or organisation has enough resources to sustain itself when including the SBCS loan.
  • An accountant’s assessment that the business or organisation is viable and ongoing.

Are there any restrictions on what the loan can be used for?

When applying for the loan, it is necessary to confirm that the loan will be used for core operating costs (e.g. rent, insurance, utilities, supplier payments) or capital expenditure. The loan cannot be passed through to shareholders or owners of the business (as either a loan or a dividend).

What are the terms and conditions?

Anyone applying for the loan should ensure they have read all of the terms and conditions as there are a number of actions which could trigger an event of default (requiring an immediate repayment of the loan, and a default interest rate).

When does the loan need to be repaid?

The loan term is five years. It is not necessary to make any loan repayments for the first two years, after this time Inland Revenue will advise of an instalment plan. Voluntary payments can be made at any time.

How much is the interest?

Once received, the loan is subject to interest at 3% per annum. If the loan is repaid within two years no interest will be charged. If the loan is paid off within the five-year lending period but after more than two years, the 3% interest rate will apply for the entire length of the loan (i.e. will be charged on the first two years also). In the event there is a default on the loan, the interest rate is increased by Inland Revenue’s use of money interest rate (currently 7%).

How do I apply?

As noted above, it is essential to ensure you understand the obligations associated with the loan, including establishing the current and ongoing viability of the business. We are here to help you with this.

Applications are currently open until 31 December 2023. You can find out more about the application process here.

If you have any questions in relation to the issues discussed above, please consult your usual Deloitte advisor.

The content of this article is accurate as at 18 December 2020, the time of publication. This article does not constitute professional advice. If you wish to understand the potential implications of current events for your business or organisation, please get in touch. Alternatively, our COVID-19 webpages provide information about our services and provide contacts for relevant experts who can help you navigate this quickly evolving situation.

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