20 Aug 2020

Expansion of government-backed loans a 'timely lifeline for businesses'

4:56 pm on 20 August 2020

The business finance guarantee scheme has been broadened by the government in an effort to get more companies to take up lending.

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Photo: RNZ

The lending, administered by retail banks but 80 percent guaranteed by the Crown, has been increased to a $5 million limit, with the maximum term upped from three to five years.

Finance Minister Grant Robertson said it was no surprise the government had not been happy with the scheme's uptake so far, but said the changes should allow banks to be more flexible with who they lend to.

"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."

So far only $150m had been lent to 780 customers.

Robertson has also made it clear the government does not require a personal guarantee from customers, although he said the banks may have their own requirements.

Changes also included the revenue limit being upped, allowing bigger companies access to the loans.

The loan could also be used to re-finance up to 20 percent of a borrower's existing debt.

Kiwibank Business chief customer officer Quentin Quin said the changes would make more of its customers eligible.

"We expect many business clients will be in touch with us immediately and we've set up a fast form on our website to streamline enquiries.

"This announcement comes at a time when businesses are grappling with a second outbreak of Covid and the restrictions and uncertainty that brings."

ASB business banking manager Tim Deane described the decision as a "timely lifeline for businesses".

He said the changes would mean more businesses could stay afloat.

New Zealand Bankers' Association chief executive Roger Beaumont said widening the scheme was welcomed but ultimately, demand would be driven by businesses.

The scheme is available until the end of the year.

Key changes include:

  • Maximum loan limit increased from $500,000 to $5m
  • Maximum term of loan increased from three years to five years
  • Criteria for borrowing extended from liquidity support/bridging finance to enable general purpose borrowing, including for capital investment, for businesses affected by Covid-19
  • More medium-sized firms can access these loans with revenue limits extended from $80m to $200m per annum
  • The scheme is available until 31 December 2020
  • BFGS loans can be used to re-finance up to 20 percent of a borrower's existing indebtedness
  • Watchlist criteria relaxed
  • Personal guarantee requirement clarified - there is no personal guarantee required by the Crown. The Crown will pay a claim in event of default where no personal guarantee has been provided
  • Discretion available for banks to act outside Supported Loan Policies, Practices, and Processes.

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