Relaunch of the Business Finance Guarantee Scheme

During the Level 4 lockdown in April and early May, the Government rolled out, and then refined, a Business Finance Guarantee Scheme.  After a very limited uptake of only $150M against $6BN allocated, this scheme has now been refined and released again. 

Feedback from our contacts across the banking industry suggests that uptake for the initial scheme was poor largely based on the complexity of gaining an approval. The scheme was limited in how funding could be utilised, and businesses had to demonstrate to their bank a viable business plan for trading post Covid-19, which was very hard to do in the middle of a Level 4 lockdown.

The updated scheme has widened criteria. Larger businesses can apply (revenue up to $200M), larger amounts can be borrowed (up to $5M), and the scheme has a wider range of uses including projects or capital expenditure that help Covid-19 recovery, and may allow refinance of up to 20% of existing debt.

It is important that borrowers understand the fundamental structure of the scheme is unchanged. The guarantee is for the benefit of the bank, and normal credit risk remains with the borrower. A default on loan obligations under this scheme enables the bank to call up any other securities it holds. If the debt can’t be recovered, the bank can claim 80% of any shortfall from the Crown.  

If your business is considering applying for a loan under the Business Finance Guarantee Scheme, please feel free to talk to us. Our team can provide general advice, and may be able to assist in the presentation of a request to your bank.

Further detail of the scheme is available here https://treasury.govt.nz/information-and-services/new-zealand-economy/covid-19-economic-response/measures/bfg