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Considering the Small Business Cashflow Loan?

The Government’s Small Business Cashflow Loan Scheme (SBCS) is designed to help small businesses with funding to pay their operating expenses. With up to $100,000 of funding per business and much lower interest rates than you’d get from the bank on the surface it seems like a no-brainer for businesses to apply.

While things seem quite straightforward on the surface, before you rush off to lodge an application it is essential that you take the time to understand the eligibility criteria, the conditions of the loan, and what it means for you.

Don’t rely on IRD to assess whether you’re eligible

Like the Wages Subsidy, it appears that the Government’s focus is on getting money into the hands of business owners as quickly as possible. With a 5 day turnaround, IRD will be operating a high-trust model and instead retrospectively check businesses who have received the loans.

If IRD determine that you've received a loan that you're not entitled to you may end up with an IRD audit and potentially being prosecuted under the Crimes Act or the Tax Administration Act. 

This is one of the reasons why IRD specifically recommends that you talk to your financial advisor to determine whether the SBCS Loan is suitable for you before you apply.

The main eligibility criteria for the SBCS Loan are:

  • Your revenue has dropped by at least 30% due to Covid-19
  • You received the wages subsidy or would have if you had applied for it
  • Your business is viable
  • You will be using the money to pay your operating costs such as rent, utilities, insurance, and suppliers
  • You employ 50 people or fewer full-time-equivalent employees

What does it mean to be a viable business?

To meet the viable business criteria, IRD have said directors or owners must have good reason to believe that the business will be able to be in a position to pay it’s debts (ie. expenses, tax payments and loan payments) as they fall due within the next 18 months.

Working out whether your business is viable given the current economic uncertainty might not be that easy. You’ll need to look at expected cashflow, have a plan for where revenue will come from, and considered both your worst case as well as more optimistic scenarios.

Beware of the fishhooks

As with any loan there are always conditions and criteria you need to be aware of. Two really important ones to understand relate to interest rates and missed repayments.

The loans have been promoted as being interest free for one year. While this is true, the interest free criteria only applies if you repay the loan within the first year. If you don’t repay the loan within a year then interest applies from the date you took out the loan.

Repayments is another area where things could get tricky. Under the scheme, you are not required to make any repayments for 2 years. But if you miss any repayments after the 2 year period then you will fall into default. This means that IRD could demand immediate repayment or the interest rate could increase from 3% to 10%.

Also keep in mind that if you don’t start making repayments for the first 2 years the interest during those 2 years will be added onto the principal of the loan.  

What this means for you

Ultimately, it is your responsibility as the business owner to make sure you meet the all the criteria, have the supporting documents to prove it, have read the fine print and got appropriate advice before you apply for the loan. 

Before you apply for the loan, we recommend that you:

  • Develop a cashflow forecast and a plan for where revenue will come from. It would pay to have a couple of different scenarios including a worst case scenario.
  • Read the loan agreement and make sure you understand what it means – if you have questions ask your lawyer or your accountant
  • Check with your bank if you have existing loans to make sure you won’t breach any banking covenants
  • Don’t rush into it – you have until the 12th June to apply. Give yourself a week or two to make sure you’ve talked to us and prepared your cashflow.

If you do want to apply, please talk to us first. We can provide assistance around considering your eligibility including determining the viability of your business, preparing or sense-checking cashflow forecasts and strategic planning.

We have a Business Plan & Cashflow service registered with the Covid-19 Business Advisory Fund. Your business may be eligible for support under the Covid-19 Business Advisory Fund for this service. Find out more by visiting