As we enter into Week 4 of the COVID-19 lockdown, client’s thoughts will move to “what will my business look like?” and how to fund the cashflow to get it back up to recovery. Any business that was successful pre COVID-19 will be successful post COVID-19, it is just a matter of how long it will take to get back to full capacity and how much cash is needed. The Government recognises this and has made available $6.2 billion in business loan support. Sounds good, but like all political promises, the devil is in the detail. Below is a bullet point summary to assist with some of the information out there:
‣ The Government underwrites 80% of the loan, and the bank takes on 20% of the risk; so it is up to the banks criteria to be met as it is their money at risk as well;
‣ The loan is a MAXIMUM of $500,000, which means this is not what you are borrowing. You need to request the level of debt that you need and demonstrate you can pay it back in three years;
‣ Your annual turnover needs to be between $250,000 and $80m (yes that is a lot of businesses!)
‣ You cannot be in the Agricultural sector (services to agriculture is included within the scheme though), property development, a local authority, and some weird sectors like whale meat production, cannabis production and munitions manufacturing;
‣ It is to fund operating expenses, so any capital funding is limited to 5% of the loan and you cannot fund out existing debts;
‣ The scheme opened on the 2 nd April 2020 and you must draw down the funds before 30th September 2020 (bear in mind that this is ever evolving so best to get in quick as the rules can change as we saw in the Wage Subsidy criteria)
‣ The loans are for three years and there is no payment for the first 90 days (so the balance is paid over 33 months)
‣ You must demonstrate that you have been affected by COVID-19
‣ You need to reduce all cash reserves first before applying
‣ The banks have the discretion to lend; the terms are being worked with the Government but basically if the banks say yes, the Government will support. It is not Government dictating to the banks. This is positive as the banks know best in lending criteria
‣ The banks will not lend for companies to go further into debt; their normal lending criteria apply;
‣ The scheme applies to registered banks only;
‣ GSA on the business and guarantees by directors will be required;
‣ If you have a “hardcore” overdraft, that could present a challenge but is not immediately counted against you;
‣ If IRD debt is under arrangement, the arrangement expense is considered normal operating expenditure and the debt is not taken as an outstanding debt (not normal practice I have to say with bank lending).
‣ Projections are needed to show that the funds are needed before 30th September 2020 and even if that is not in April 2020, apply now. We can assist with projections if needed.
In summary, the Banks are wanting to support good businesses through this process. If you would get a loan pre COVID-19, then there is a good change you will be supported through the loan process. The bank’s forms should be on-line and submitted through their websites or directly to your bank manager. The difference between this and the GFC is that this is a HEALTH crisis not a FINANCIAL crisis and the bank and Government have money (not unlimited of course) to support. The banks will balance between supporting customers and minimising losses to support clients.