Scheme to help companies out of Covid-19 pandemic
Venkat Raman
Auckland, August 20, 2020
The New Zealand government will guarantee bank loans up to 80% of the amount lent by commercial banks in the latest of measures to revive the economy.
Finance Minister Grant Robertson announced today an expanded version of the ‘Business Finance Guarantee Scheme,’ under which the maximum loan limit will increase from $500,000 to $5 million and the term from three years to five years.
He said that the revision to the Scheme, which will be available up to December 31, 2020, is based on the feedback from the banks, the Treasury, Reserve Bank of New Zealand and customers.
Banks and criteria
Commercial banks participating in the Scheme are ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac.
The criteria for borrowing has been extended from liquidity support/bridging finance to enable general purpose borrowing, including for capital investment, businesses affected by Covid-19.
Loans under the Scheme can be used to re-finance up to 20% of a borrower’s existing indebtedness.
The Scheme will allow more medium-sized companies to access loans with revenue limits extended from $80 million to $200 million per annum.
“The Government has put a number of measures in place to support businesses to invest as the economy recovers from the impact of the global Covid-19 pandemic. The Business Finance Guarantee encourages banks to support their customers, by offering an 80% Government guarantee over the loans issued under the scheme,” he said.
Flexibility extended
Mr Robertson said that the government was aware that the original scheme had a lower uptake with just $150 million lent to 780 customers to date.
The changes should allow the banks to be more flexible with the scheme, he said.
“Changes needed to be made and banks have come to the table and agreed to the modifications. Extending what the loans can be used for, including capital investment, means banks can use the scheme to help more viable businesses respond to this 1-in-100 year shock. While banks will still have their own lending requirements and make their own lending decisions, the government has clarified that the Crown does not require a personal guarantee on lending made under the Business Finance Guarantee Scheme,” he said.
Despite the government guarantee, the participating banks will have the discretion to grant loans under the Scheme.
Watchlist criteria relaxed
Mr Robertson clarified that the Crown would not require Personal Guarantee under the Scheme.
“The Crown will pay a claim in event of default where no personal guarantee has been provided. The Business Finance Guarantee Scheme supports the provision of bank loans to viable businesses, encouraging banks to lend where otherwise they may not, by the Government taking on the default risk for the bank of up to 80% of the loan. Borrowers are still liable and must pay the debt back, with interest, in the usual way,” he said.
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