26.05.2020

COVID-19 Update: Back in business under Alert Level 2

As we head into week two of New Zealand operating at Alert Level 2, we have enjoyed the change of focus back to new transactions.  Many of our key industries are now working as they were prior to shut down, though unfortunately significant pressure remains in industries such as tourism, retail, and hospitality.  We have continued to see an increase in funding applications.  The finance landscape has changed significantly over recent months, with many lenders having a more restrictive appetite for lending than pre-Covid-19.  It is critical that we provide our funding partners with well-presented credit submissions which cover their concerns about the economic impacts of the Covid-19 downturn.  All lenders require a good business case as to why the proposition makes sense for the borrower and funder and is sustainable in the post Covid-19 economic environment.  Our expertise in appropriately structuring a deal and the range of funders we work with enables us to achieve approvals for most applications submitted. 

In terms of economic developments in recent weeks, we are hearing of significant interest from smaller businesses in the Government’s IRD administered Small Business Cashflow Loan scheme with media reporting over $820M lent to date.  This scheme offers firms that employ less than 50 people loans of up to $100,000 based on a $10,000 plus $1,800 for every full time employee.  While the average loan size is small, the loan would seem to be attractive to the small business sector. Feedback suggests this has been popular on the basis that it is easy to obtain, interest free for the first year, then attracts only a low interest rate with full repayment required within five years.  We have heard of businesses using these funds for a wide range of applications, including general working capital, small capex purchases, deposits into larger machine purchases, and security for bonds.  Like any lending, we do urge businesses to take care that they are comfortable money borrowed under this scheme can be repaid.  It is a loan, not a grant. Further information can be found here:  https://www.interest.co.nz/business/105161/governments%C2%A0ird-administered-small-business-cashflow-loan-scheme-has-lent-more-824

By contrast, uptake of the Business Finance Guarantee Scheme remains subdued.  This scheme was administered by the main trading banks, with the government guaranteeing 80% of the credit risk.  Feedback from both clients and our bank contacts suggests demand for these loans has been lower than anticipated, largely due to the complexity required to qualify for an approval under this scheme. 

We are thankful that work has resumed across most of the economy. Like all New Zealanders, we are glad to be back to some “normality”.  Over the last fortnight we have supported a number of asset acquisitions. Some examples from around the country can be viewed here on our Finance New Zealand facebook page. 

It has certainly been an unprecedented couple of months and we hope you are enjoying the relative freedom of Alert Level 2.  Please don't hesitate to get in touch with our team to discuss any funding solutions you may require.