Welcome to Alert Level 3.

Seven days in and we have some good news from Government in the form of a new Small Business Cashflow Scheme. The Government has also introduced a Loss carry back scheme which will be of use to some clients who are looking at tax losses in the 2020/21 financial year. More on this later.

Keep well. We are here to assist you.

The Strawbridge Team

Some good news on Friday 1 May 2020
We are happy to report that there have been a few good positive developments for businesses in the past week. These are:

  • Introduction of a loan scheme for small businesses
  • Introduction of a loss carry-back scheme
  • Relaxation of the requirements of the Business Finance Guarantee Scheme

We will provide an update on the loss carry back scheme later this week as further information on the operation of that scheme is expected to be released on Monday afternoon.

Small Business Cashflow Scheme
From 12 May, businesses with 50 or fewer full-time equivalent employees will be eligible for a loan from the Government if they are significantly affected by Covid-19 (same 30% turnover drop requirements as required by the wage subsidy scheme).

Important details of the small business loan scheme:

  • Businesses with up to 50FTE employees can apply.
  • The loans are only to be used for working capital/operational expenses.
  • The loans will be interest-free if repaid within 12 months.
  • If the loans are not repaid within 12 months, the interest rate will be 3%.
  • The maximum term of the loans is 5 years.
  • No repayments of principal or interest is required within the first 2 years.
  • Applications open 12 May and will be made through Inland Revenue, who will be administering this scheme.
  • The amount of the loans is up to $100,000 ($10k +$1,800 per employee). No security is required.

It all sounds good, so what is the catch? To get one of these loans, a business will need to sign a declaration that it is viable. To do this in good faith, business will need to have a sound basis for concluding that they are viable. The requirements will differ case by case, but generally this would include the likes of forecasts and business continuity plans.

Audit activity on these loans will be performed by Inland Revenue.

Business Finance Guarantee Scheme (“BFGS”)
It is fair to say that the BFGS was not working as well as the Government had intended. Our experience was that the scheme was not working because it had too much red tape and was too onerous for businesses to apply and comply with the requirements placed on it by the banks. After receiving feedback, the Government is relaxing the requirements to enter the scheme. The first change is removing the requirement of having a General Security Agreement (GSA). The second change is removing the requirement that the business is required to draw down all existing financing arrangements before applying for a BFGS loan. Further relaxation of requirements is expected.

We welcome these changes as the BFGS loans have very low interest rates, so therefore we would like to see more businesses being able to access them, where needed.