Rules relaxed for government business loan guarantees after initial flop

Thursday, 20 August 2020

BNZ is among the banks that have applauded a major relaxation of the rules surrounding the Government’s Business Finance Guarantee Scheme.

A second attempt is under way to breathe life into the Government’s Business Finance Guarantee Scheme after banks and businesses claimed less than $150 million of the $5 billion in loan guarantees it offered.

The scheme was introduced in April by Finance Minister Grant Robertson as a way to encourage banks to lend to businesses that might need support during the Covid crisis.

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

The Government first tweaked the scheme in May, axing requirements for businesses to have an annual turnover above $250,000 to qualify and for firms to have drawn down all their existing borrowing facilities before becoming eligible for loans guaranteed by the scheme. It then opened up the scheme to farmers.

Finance Minister Grant Robertson says the Government has been open about the fact it was disappointed by the earlier uptake of its bank loan guarantees.

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The new changes will lift the maximum size of loans that can get the 80 per cent government guarantee from $500,000 to $5m and the maximum term from three years to five.

Banks will now be able to claim the guarantees when they lend money to businesses for capital investment, and the revenue cap on eligible businesses will be increased from $80m to $200m.

In a potentially significant change, the Government has agreed to indemnify bank loans under the scheme in situations where loans are not subject to a personal guarantee from the borrower.

The scheme will be in place until the end of the year.

Robertson noted the scheme was only one of the measures the Government had put in place to help businesses through the Covid crisis. Others include wage subsidies and the Small Business Cashflow Scheme, which has seen the Government lend money directly to small businesses.

But the Government had been open about the fact that the Business Finance Guarantee Scheme had seen “a lower uptake than we would have liked”, he said.

The new changes were based on feedback from banks and their customers and should allow banks to be “more flexible with the scheme”, he said.

The Government had listened to concerns from businesses regarding “requirements for a personal guarantee”, he said.

While banks would still have their own lending requirements and make their own lending decisions, the Government had clarified that the Crown did not require a personal guarantee on lending made under the scheme, he said.

The final decision on whether guarantees were required would still be up to individual banks, he said.

ASB, Bank of New Zealand and Kiwibank have all issued statements supporting the changes.

ASB business banking manager Tim Deane said ASB had approved more than $40m of new loans partially guaranteed by the scheme. “But the eligibility and lending criteria originally set by the Government meant some customers couldn’t access it,” he said.

Kiwibank chief customer officer Quentin Quin said the expanded criteria meant “a whole lot more” of the bank’s business customers would qualify.