COVID-19: Latest updates to the Business Finance Guarantee Scheme

Funding lines open for SMEs - 24 August 2020

The Business Finance Guarantee Scheme (BFGS) is part of the Government’s package of reforms to support the New Zealand economy during the COVID-19 pandemic. It was launched by the Government in early April with applications open until 31 December 2020. On 20 August, the Minister of Finance, Hon Grant Robertson, announced changes to simplify and expand the existing BFGS to support COVID-19 recovery.

Under the latest BFGS, New Zealand-based businesses with annual revenue of NZ $200 million or less will be able to apply to banks for loans of up to NZ $5 million for a period of up to five years. The loans will have 80% of the risk guaranteed by the Government, with the banks guaranteeing the remaining 20%. The Government has made it clear that there is no requirement from the Government for borrowers to have to provide personal guarantees. However, each bank is able to set its own lending criteria which may include personal guarantees.

The purpose of the BFGS is to get vital funding through to businesses, while leveraging the strength of the Government balance sheet as guarantor.

The scheme was originally expected to result in loans of NZ $6.25 billion to New Zealand businesses, however under its original, more restrictive terms only NZ $150 million has been lent to date to 780 businesses. With the latest Government announcements, it is hoped this figure will rise to get more cash available to businesses.

The loans will be entered into by the relevant banks, following normal lending processes. We would expect that each bank will want to understand the impact of COVID-19 on your business and the intended use for the funds. This could involve reviewing the trading position before the COVID-19 crisis and reviewing plans for the future and the assumptions being made. Expect to be asked for the last financial statements of the business, details of assets, details of your tax position, a cash flow forecast detailing income and expenditure, and personal statements of position of the business owners.

Deloitte is running business continuity diagnostic labs which can help with the process of preparing an application. Our Deloitte advisors listed below can explain this process.

While the individual terms and conditions may slightly vary between lenders, the loan is intended to be used to enable general purpose borrowing, including operating cashflow needs, capital investment, and project funding related to, responding to, or recovering from, the impacts of COVID-19. An important new feature is that businesses can now also use loans to acquire assets.

However there remain some things which loans cannot be used for, including:

  • Dividends to be distributed outside the applicant’s guaranteeing group.
  • On-lending outside the applicant’s guaranteeing group.
  • Refinancing more than 20% of existing debt.
  • Any purpose related to an excluded activity (largely activities which are illegal in New Zealand).

There are a number of businesses that the Government has deemed to be ineligible for the Government BFGS - most notably property development and property investment, as well as local authorities, council-controlled organisations and council organisations for the purposes of the Local Government Act 2002.

More details of the BFGS are available on the websites of each of New Zealand bank participating in the scheme:

The content of this article is accurate as at 24 August 2020, the time of publication. This article does not constitute 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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