Inland Revenue (IRD) says businesses that borrowed money via the Small Business Cashflow (SBC) loan scheme face loan default if they don't pay them by June.
The SBC was launched in May 2020. Up to $100,000 was potentially available via unsecured loans for businesses with 50 or fewer full-time staff. The loans were interest free if repaid within a year. Thereafter an interest rate of 3% has been charged for a maximum term of five years, with repayments not required for the first two years.
IRD says the final repayment date is fast approaching. More than 129,000 businesses were issued loans totalling $2.4 billion. The average loan amount approved was $17,000. It says most borrowers took out a loan in May and June 2020 with five years to repay the loan. Thus many will reach their cut off point from June this year.
"From June Inland Revenue will default a loan if it has not been paid off. Default interest, calculated based on use of money interest of 10.88% plus standard interest rate of 3%, will be charged," IRD says.
"As of 31 December last year, 51,021 people had repaid their loan in full, with a total loan balance of $953 million still owing. Approx 10,000 loans are already in default, owing just over $161 million. IRD is actively taking steps to recover these defaulted loans."
IRD says a high proportion of borrowers are sole traders, alongside small businesses employing between two and five full-time staff. The largest number of loans were taken out by Auckland businesses where Covid lockdowns were longer.
"IRD will notify customers who are behind on their repayment plan and remind them that repayment is needed. We also let them know there are consequences, such as default interest being added to the balance, if the loan remains unpaid."
"Customers can also check their loan balance, repayment plan and make payments in their myIR," IRD says.
"For any changes to a repayment plan or any changes in circumstances, customers can also contact IRD through the secure channel in their myIR account to discuss options."
The SBC was at least in part a response to dismal take up of the Business Finance Guarantee Scheme. Via this scheme, announced in March 2020, the Government said it would underwrite 80% of individual bank loans on lending worth up to $6.25 billion to small and medium sized enterprises (SMEs). New Zealand Bankers' Association figures showed as of June 2020, just $86 million had been lent to 503 customers.
Treasury advised Cabinet that up to $6.5 billion could be made available through the SBC, and that costs to the Crown could be $3.25 billion.
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