Coronavirus: Only $23m of loans approved under '$6.25b' government scheme

Friday, 8 May 2020

The low initial take-up of the Government's Business Finance Guarantee Scheme has been laid bare.

Banks have approved only 174 loans worth a total of $23 million under the Government's supposedly 'multi-billion-dollar' Business Finance Guarantee Scheme that was announced more than a month ago.

Finance Minister Grant Robertson said when the banks began accepting applications for the government-guaranteed loans on April 1 that it would 'help protect businesses, jobs and the economy during this unprecedented global economic shock'.

The scheme is designed to help businesses with an annual turnover of up to $80m secure bank loans of up to $500,000.

The Government agreed to swallow 80 per cent of any loss if a business defaulted on a bank loan made under the scheme, with the bank taking on only the remaining 20 per cent of that risk and all of any profit.

But data released by the Bankers' Association on Friday showed the scheme was not living up to expectations in its original form.

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Chief executive Roger Beaumont said many businesses had instead decided to roll over existing loans with their bank or extend their regular bank overdrafts.

The Government overhauled the scheme last week to remove a variety of obstacles to its take-up.

Among the changes, there is no longer a need for businesses to have an annual turnover above $250,000 to qualify, farmers have been allowed to apply, and firms no longer need to have drawn down all their existing borrowing facilities before becoming eligible for the loans.

Beaumont said banks had lent $7.2b to businesses outside of the scheme since the country went into lockdown on March 26.

Businesses were more likely to apply for the government-guaranteed loans once they had formed 'a clearer view of their longer term prospects and needs' and that was more likely now the country had moved down to level 3, he said.

“We welcomed Treasury simplifying their scheme rules last week,' he said.

“It’s important to remember that businesses still have about five months, until September 30, to make applications.'

Robertson has made mixed comments about banks' lending performance during the coronavirus pandemic.

At one point he said they had not met the Government's expectations with regard to small business lending.

But he later said banks had 'worked constructively with the Reserve Bank to assist the worst-affected businesses and households'.

BNZ has so far lent only $5m to 33 customers under the government scheme.

It said it was seeing many businesses choose to extend their existing overdrafts while they considered whether the government-guaranteed loans suited their purposes.

Westpac said it had approved 52 loans totalling $6.7m under the scheme and had received 74 'expressions of interest' about it, most of which it was still working through.

'It can take some time for a business to pull together a full application,' it said.

The Government last week launched a separate scheme under which businesses with up to 50 staff will be able to apply to Inland Revenue for zero and low-interest loans up to $100,000.