The major banks have worked through the details of implementing the Government Business Finance Guarantee Scheme. So far, we have only been able to see comprehensive details from 2 of the banks (the others are yet to publish them online), but we suspect they will all be fairly similar.
From the government’s perspective, the purpose of these loans is to make sure that businesses have sufficient cash to continue to trade, so these loans are geared toward cashflow funding.
There are some exclusions, one of which is to discourage businesses from using these loans to refinance existing debt.
One area that is worth highlighting is the security for these loans. While the government is offering security, in the first instance, the bank is seeking security from the end customer: you. This means that your business will still be on the hook for any default on these loans. More importantly, as businesses that take advantage of these loans will likely be a little more vulnerable, we expect that the banks will expect personal guarantees, meaning you (personally) will be on the hook, too.
If you are applying for one of these loans, an area we urge you to pay close attention to is the size and scope of any guarantee you are personally providing. In the process of securing one of these loans, the bank may be asking you to guarantee other debt that your business has as well as the new loan.
What we suggest
You should always understand what you’re signing, but right now we are specifically advising that people pay very close attention to the value of any guarantee you’re asked to sign, and to what debt the guarantee applies to. The fine print might be VERY expensive if things don’t work out in the long term!
Check your bank’s website to find out the details of the loans.
Business Debt Hibernation
In an announcement from Stuart Nash and Kris Faafoi on Friday, an outline for a ‘safe harbour’ from insolvency issues has been outlined. What this means is that if your business is unable to pay its bills as they fall due (one measure of insolvency), and 50% of the business’s creditors agree, the business may be able to ‘park’ these debts for a short period of time. The idea being that the business will then have some breathing space to trade their way back to solvency and pay off the debts that were ‘parked’. This is yet to enter legislation, so doesn’t yet exist.
The devil will be in the detail; we expect that the government will be cautious about making sure that the scheme isn’t too easily abused, so there is probably going to be some fairly stiff criteria around this. More info will be released over the coming weeks.
For more information you can read the press release here: https://www.beehive.govt.nz/release/further-measures-support-businesses