Government’s SME Cashflow Loan Scheme: What You Need To Know
The government has recently announced the latest support measure for small to medium-sized businesses struggling in the Covid-19 pandemic. Under the Small Business Cashflow Loan Scheme, eligible firms can now receive interest-free and low-interest loans of up to $100,000. The aim is to provide help with ‘immediate cashflow needs’ and fixed operating costs.
The scheme will provide a much-needed cash injection for many SMEs, and this is welcome news. Unlike some of the other support measures which have a longer lead-in, it’s designed to give immediate relief to help keep businesses afloat.
Here we take you through what you need to know about the loan scheme.
Who is eligible?
Only businesses that employ 50 or fewer full-time equivalent employees are eligible to apply. As well as providing a declaration that the company is viable at the time of application, firms must also meet the criteria for the Wage Subsidy Scheme.
To qualify for the Wage Subsidy, a business must:
- have experienced a minimum 30 per cent drop in actual or predicted revenue and the decline is related to Covid-19
- have taken active steps to mitigate the impact of Covid-19
- agree to retain employees for the period of the subsidy.
It’s not yet clear whether the loan scheme will require businesses to keep the same employees on throughout the terms of the loan. Inland Revenue is administering the scheme, and hopefully, this will become clear before applications open.
What are the terms and conditions of the loan?
The government has made it clear that the loan can only be used to offset core business operating costs. That covers expenditure on, for example, rent, rates, insurance, utilities and supplier payments. You won’t, therefore, be able to use the loan to finance salaries, owner’s drawings or for shareholders loans.
As the scheme is government–backed, no security is required from the borrower. However, businesses that apply will need to sign a legally binding contract with the government.
The amount you can borrow depends on the number of full-time employees you have. Each company can borrow up to $10,000. And for each full-time employee, they can receive an additional $1,800. So, for a company employing 50 full-time staff, the maximum loan is $100,000.
The loan term is up to five years, and no repayment is required in the first two years. Furthermore, the loan is free of interest if paid back with the first year; otherwise, interest is charged at 3 per cent annually.
How do I apply?
Applications can be made from 12 May through the Inland Revenue. Click here for more details. At the moment, there is only a one-month window in which you can apply, so make sure you do so before 11 June 2020.
Inland Revenue’s decision on whether to approve or decline the application is final. There’s no appeal mechanism in place.
Is other help available from the government?
Along with the Wage Subsidy Scheme, there is now a whole raft of support in place for SMEs. These include the following:
- Business Finance Guarantee Scheme
- a range of tax measures
- support for commercial tenants and landlords.
Full details on the business support package are available on the Government’s Covid-19 website.
Get in touch for expert help and advice
Our expert team is ready to help. Get in touch today for advice on what government funding is available to your business or assistance with completing any loan applications.