COVID-19: Explaining the Government Small Business Cashflow Scheme

Small business cashflow scheme

The New Zealand Government has just announced another way it’s going to provide relief to help small business, sole traders and self-employed people.

If you haven’t already heard, it’s called the Government Small Business Cashflow Scheme (SBCS), and we’ll run you through what you need to know.

Like the Wage Subsidy Scheme, there are criteria that businesses will need to meet before they can receive the loan. Businesses will need to make a declaration and use the money for mandatory operational costs.

Below we’ve reviewed and collated some key points and information for businesses who may be considering applying for the scheme.

What is the Government Small Business Cashflow Scheme?

The Government Small Business Cashflow Scheme, is an interest-free loan to New Zealand small businesses. It is another way small businesses can get assistance after being adversely affected by the Covid-19 crisis.

We recognise that many businesses have had little or no revenue through Alert Level 4 and Level 3. This scheme is designed to give them access to cashflow to meet fixed costs on concessionary terms –  Stuart Nash

The loan is another offer of help from the Government in addition to the wage subsidy scheme.

What can the loan be used for?

The money from the loan can be used to cover business leases, rates, insurances, electricity, and other utility bills. Businesses will also be able to use the money towards paying their suppliers.

What can you not use the loan for?

The Small Business Cashflow Scheme cannot be passed onto shareholders or owners of businesses through dividends.

It looks like the Government Small Business Cashflow Scheme is almost too good to be true. And we’d imagine everyone with a small business, and especially those in the tourism sector are breathing a sigh of relief.

However, there are some points you should take note of.

What do I need to know about the Government Small Business Cashflow Scheme?

Information surrounding the Small Business Cashflow Scheme is of course, still being gathered. There may be new information that is shared with us from the Government over the next few days before applications officially open.

So, here’s a breakdown of the Government Small Business Cashflow Scheme to date

  • The Government will provide interest-free loans of up to $100,000 to small businesses grappling with the impacts of Covid-19.
  • The loans are available for a year and will be offered to businesses with 50 or fewer full-time equivalent staff.
  • But the loans are only available to businesses which have had their revenue hit by more than 30 per cent due to Covid-19.
  • The scheme will provide $10,000 to every firm and in addition $1800 per equivalent full-time employee.
  • That means if a firm has three full-time equivalent workers, it would receive $15,400 – $10,000 as a base loan and $5,400 for all three employees.
  • A firm with 50 full-time workers would get the full $100,000 – $10,000 as a base loan and $90,000 for its 50 employees.
  • Applications will open from May 12.

How much is my business entitled to?

As above, the payment to each business will begin at $10,000. As an example, if a business had three full-time employees it would receive $10,000 as a base loan. Then a further $5400 for all three of its employees. So, in total the business would get $15,400 from the Government Small Business Cashflow Scheme.

For larger firms with 50 full-time workers, they would be entitled to receive the maximum capped loan of $100,000. That works out do be the base loan amount of $10,000, plus $90,000 for the businesses 50 full-time employees.

If you think your business may qualify for this scheme, you can use this calculator here to see what you may be entitled to.

What happens if I can’t repay the loan after a year?

The Government has advised that the loans are only interest-free for one year. Beyond a year businesses that receive the loan can expect to pay interest.

  • A 3 percent interest rate will apply to any outstanding amounts on the loan and this is calculated from when the loan is taken out.
  • The 3 percent interest rate will apply for a maximum of 5 years.
  • Repayments won’t be required within the first two years.

Ready to apply? We have some helpful tips for you to think about before you do

Just like the Wage Subsidy Scheme – remember before you apply, this isn’t free money! You will have to pay it back.

  • Look at your current staffing levels. We know it’s not an easy decision to make and not a nice thing to think about but you may need to look at a restructure and redundancies.
  • If your business sells stock, you could focus on reducing your stock holding if this is possible. Lots of businesses are using this as a chance to have a sale of old stock that doesn’t move so easily. This will allow you to free up cashflow.
  • Thinking about purchasing assets? Now might not be the time, unfortunately. Maybe look to defer some planned asset purchases
  • Look through your profit and loss reports. Are there expenses that can be put on hold?

How do I apply for the Government Small Business Cashflow Scheme?

The number one question to ask yourself is – could you afford to repay this loan before COVID-19? If not, how will you pay this back?

You need to consider your cashflow before and after Covid-19. Otherwise, you will be stuck trying to pay a loan off, that even before Coivd-19 you can simply not afford.

If you’re unsure, talk to us. We can help you figure out if your business is in a position to apply and also whether your able to afford the repayments on this loan.

If you are going to apply for the Small Business Cashflow loan, we’d suggest opening another bank account, that is separate from your other accounts. That way you can easily keep track of the loan and show what the money has been used for.

What to do next?

The best place for any business to start is by getting a cashflow forecast.

Cashflow forecasting is one of our specialties here at Legacy Accountants. We can help you apply for funding, to cover getting a cashflow forecast done. If you qualify for the funding it means you won’t be charged for getting a cashflow forecast done.

If you are going to apply for the loan, we’d suggest having a good discussion with your accountant or get in touch with one of our team who can give some guidance on what you can do next.

You can begin your application for the Small Business Cashflow Scheme from the 12 of May 2020. You can find the application here. You will need an MYIR login to apply.

Here are some other resources that might find helpful and informative:

More info on the small business loans here:

Information on Level 2 here:

Guidance for essential businesses here:

Business support during COVID-19

EBOP Chamber COVID-19 support

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