Covid-19 Government & Banks Support Update

Just announced today: Government to provide $100,000 interest-free loans to businesses

The Government will provide interest-free loans of up to $100,000 to small businesses grappling with the impacts of Covid-19, after banks failed to meet the Government’s expectations.

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.

In a statement, Finance Minister Grant Robertson appeared to be disappointed in banks’ lending to help businesses impacted by Covid-19.

“It has become clear that the support that is available to our small and medium businesses from banks is not meeting their needs nor our expectations as a government,” he said.

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 $5400 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.

The loans are only interest-free if they are paid back within a year, Robertson said.

After that, the interest rate will be 3 per cent for a maximum term of five years. Repayments are not required for the first two years, he confirmed.

The money can be used to cover rent payment, insurance, utilities, supplier payments and rates, Robertson said.

But the loan cannot be passed through to shareholders or owners of businesses through dividends.

Revenue Minister Stuart Nash said the scheme was designed to give small businesses access to cashflow to meet their fixed costs.

“We recognise that many businesses have had little or no revenue through alert level 4 and level 3.”

He said the conditions for the loans are the same as they are for the wage subsidy scheme.

That means businesses need to have been “viable” going into Covid-19, and they need to show their revenue has been impacted by at least 30 per cent as a result of the pandemic.

“These kinds of terms are not available anywhere else,” Nash said.

The scheme will be administered by Inland Revenue who will be taking applications from May 12, and will pay out very shortly thereafter, Nash said.

The Government is also making changes today to the criteria for the previously announced Business Finance Guarantee Scheme, including removing the requirement for a General Security Agreement.

Other Government and Bank Assistance that is available is detailed below:

Employer Wage Subsidy Scheme

  • 12 weeks per employee
  • $585.80 per week for full time workers (20 hours or more pw)
  • $350 per week for part time workers (less than 20 hours pw)
  • To qualify, your business must have experienced at least a 30% decline in revenue, AND the decline must relate to Covid-19
  • You must use the subsidy to continue paying wages
  • New and high-growth businesses may also qualify
  • The scheme closes (at the moment) on 9th June 2020

Many of you will all ready have applied for and received wage subsidies through Work and Income. For those of you who, for whatever reason have not applied for these subsidies yet, if your business is laying people off or reducing their hours because of COVID-19, it may qualify for the wage subsidy to help it keep going. This is a brief refresher for those of you who have yet to apply for these subsidies.

The subsidy is a lump sum payment for you to pass on to your employees. It covers 12 weeks per employee and pays $585.80 per week for full-time workers (those who work 20 hours or more per week) and $350 per week for part-time workers (those who work less than 20 hours per week).

To qualify, your business must have suffered or is projected to suffer at least a 30% decline in revenue compared to the previous year for any given month between January 2020 and the end of the scheme in June 2020. Applications can also be made on the basis of forecast revenue losses within the period of the scheme.

If you are receiving the COVID-19 Wage Subsidy, you must try your hardest to pay the employees named in your application at least 80% of their usual wage. If that isn’t possible, you need to pay at least the subsidy rate (i.e., full-time or part-time). If your employee’s usual wages are less than the subsidy, you must pay them their usual wages. Any difference should be used for the wages of other affected team members – the wage subsidy is designed to keep your employees connected to you.

If your business has not been operating for a full year, or you are a high growth business, to qualify you need to compare your revenue against a previous month that gives the best estimation of the revenue decline related to COVID-19. For example, January 2020 compared with April 2020 shows a 30% loss of revenue which is attributable to COVID-19.

At this stage, the scheme closes on 9th June 2020.

To apply, go to the Work and Income website. If you need help, contact us.

Remember that anyone can search within the Work and Income website and see if a particular business received a wage subsidy, along with how much they received, If you receive a subsidy and it turns out that you weren’t eligible, you will need to repay the subsidy.

Mortgage Holiday Scheme

The details:

  • A six-month principal and interest holiday for mortgage holders and small to medium sized businesses; or
  • Interest only payments for six months+

If you obtain a principal and interest holiday, the interest that accrues will be added to your mortgage.

Under the scheme, if your financial situation has been affected by Covid-19, you could be eligible for a home loan repayment deferral for six months, maybe more. Alternatively, you can talk to your bank about extending the term of your mortgage, so that your monthly payments are lower, placing less pressure on your business’s cashflow.

It’s important to note that if you obtain a principal and interest holiday, the interest that accrues over the holiday period will of course be added to the loan balance.

Most of the trading banks have an online process for getting the ball rolling on a mortgage holiday, so jump on their website, the process is quite simple.

Business Finance Guarantee Scheme

Loan Details:

  • One loan of up to $500,000
  • The loan is for up to 3 years, with interest rates from 4% p.a.
  • You must be an eligible business
  • The loan must be used to support operating expenses
  • Capital expenditure of up to 5% of the loan is permitted
  • 80% of the credit risk is carried by Government, 20% by the bank

Government has launched a business finance guarantee scheme for small and medium-sized businesses, to protect jobs and support the economy.

Eligible businesses may apply for one loan of up to $ 500,000.

Loans will be for a period of up to 3 years, at interest rates from around 4%. Actual interest rates will vary, depending on each business and will vary slightly from bank to bank.

The loan must be used to cover operating expenses, things like wages and rent, rather than to fund capital expenditure, such as buying a new business vehicle. Having said that, capital expenditure of up to 5% of the loan is allowed.

Government is guaranteeing 80% of the risk, while the banks are covering the remaining 20%. A normal lending process will be followed by the banks, which will make the lending decisions. Further details can be found on your bank’s website and in some cases an online application form.

Banks participating in the scheme include ANZ, ASB, BNZ, Heartland Bank, HSBC, Kiwibank, SBS Bank, TSB and Westpac.

Eligibility:

  • Businesses with annual turnover of between $250k and $80m
  • Certain Exclusions Apply:
    • Property investors/developers
    • Agriculture
    • Recreational cannabis etc.
    • Refinancing existing debt, except for advances made after 16th March 2020

What you’ll need to show the bank:

  • That you can service the debt, based on pre-Covid financials, with increased debt levels, requiring a cash-flow forecast
  • A forward-looking (12 month) plan to return to viability
  • Your latest Annual Accounts
  • That all other existing bank facilities have been exhausted

Each of the trading banks will have slightly different information requirements in processing loans under the Business Finance Guarantee Scheme.

It will take banks around 10 working days to process loan applications under the scheme.

The banks are encouraging their clients to make best use of their accountants to prepare and present this information and this is certainly where we can add a lot of value.

Xero Assistance Programme – XAP

The Xero Assistance Programme (XAP) is a 12-month pilot programme that aims to provide mental wellbeing counselling and resources to Kiwi small businesses.  Confidential counselling sessions are available via phone, video conference or live chat to help with work related and personal issues.  XAP is available to all Xero Partners, as well as any of their clients on a starter, standard or premium plans, their employees and their families.

To find out more email xap@xero.com or visit the xero website.

IRD Relief

  • Interest remission once core tax paid
  • Remission of penalties
  • Greater flexibility with tax payment dates
  • Instalment arrangements
  • Write-offs due to serious hardship
  • Write-offs under “maximum recovery”

We can work directly with IRD on your behalf

To be eligible for remittance of penalties and Use Of Money Interest, customers must meet the following criteria:

▪ They have tax that is due on or after 14 February 2020

▪ Their ability to pay by the due date, either physically or financially, has been significantly affected by Covid-19

▪ They will be expected to contact the Commissioner as soon as practicable to request relief and will also be required to pay the outstanding tax as soon as practicable

▪ They must have been significantly adversely affected by Covid-19 financially and their income or revenue has reduced as a consequence of Covid-19 and, as a result of that reduction in income or revenue, is unable to pay their taxes in full and on time.

Still very subjective: “As soon as practicable” will be determined on the facts of each case but Inland Revenue considers the term means that, so long as the taxpayer applies for the relief at the earliest opportunity and agrees to an arrangement that will see the outstanding tax paid at the earliest opportunity, or will be paid over the most reasonable period given the taxpayer’s specific circumstances, the test will be met.

Inland Revenue accepts that customers will have difficulty paying all their taxes in full and on time. However, it is important that they continue to file their returns on time. The information in those returns will allow Inland Revenue to have a more complete picture of a customer’s financial position when considering the various options for relief, so may reduce the amount of information required to consider whether or not to agree to the request for relief, and the extent of that relief. In addition, the information in those returns provides important information to the government – at the present time to be able to monitor the effects of Covid-19 on New Zealand’s economy.

Inland Revenue is being given discretionary power to provide an extension to due dates and timeframes across all tax legislation. This could include, for example, extending deadlines for filing tax returns and paying provisional and terminal tax. At this stage, the power will be time-limited for a period of 18 months.

In addition to the specific relief and discretionary measures outlined, we can work with you to put forward an application to Inland Revenue for an instalment arrangement ensuring you keep valuable cashflow in the business. Depending on your specific circumstances, there may be occasions where a write-off of core tax may also be available if payment would place you in serious financial hardship and/or the amount you are paying represents the best outcome commercially for the IRD – all things being considered. There are some very specific criteria that Inland Revenue is required to follow under the legislation and we would need to assist you to provide the required information for consideration.

Tax Loss carry Back Scheme

  • Businesses expecting to make a loss in either the 2019/20 year of the 2020/21 year will be able to estimate the loss and use it to offset profits in the past year
  • As a result, businesses can cash out all or some of their losses in 2019/21 or 2020/21 rather than carrying forward any loss to future years
  • Permanent application for future years subject to detailed design and consultation in the second half of 2020

A new loss carry-back scheme will enable a business to offset a loss in a particular tax year against a profit in a previous year, and receive a refund of the tax paid in the previous profitable year. The proposed mechanism will provide cash to businesses that are, or anticipate, being in loss. A temporary mechanism will be included in a Bill introduced the week of the 27th of April. Between now and then, Inland Revenue will be undertaking targeted consultation with tax advisors to make the law and administrative guidance as clear as possible.

We will need to see the fine print in the Bill before we can practically help clients use the scheme to get a refund of tax they have paid in the past financial year. For example, we would expect a company will need sufficient imputation credits to allow a release of a refund. We also need to be careful on the basis we estimate, as their would be a use of money interest cost if we get it wrong and essentially receive too much of a refund.

Taxpayers do not need to rush to re-estimate their provisional tax before 7 May. Part of the proposed law change would make it possible to re-estimate it after the date of the final instalment. This will give us more time to work out any estimated loss for the 2020/21 income year.

Commercial Tenants and Landlords

  • Many lease agreements include a ‘No access in emergency’ clause, meaning a reduction in rent is required in law.
  • Tenants and landlords are working together to assess a fair reduction in rent as a result of the lock-down
  • In addition, Government is extending the time frames required before landlords can cancel leases

Many commercial lease agreements include a ‘No access in emergency’ clause, to cover circumstances where tenants cannot occupy premises. This clause was introduced into the standard commercial lease agreement template after the 2011 Christchurch earthquakes. This means that landlords need to assess a rent abatement (refund), being a fair proportion of the rent and outgoings for the period that the premises cannot be occupied. As to what is a fair proportion, that depends on the type of business (retail, office, manufacturing, etc.). There are no hard and fast rules here and what we are seeing is tenants and their landlords working together to come to a compromise. After all, it makes sense that landlords share in some of the pain that their tenants are experiencing and it is also in their interests to have a solvent tenant whose business can survive. Please note that if your business is classified as an ‘Essential’ business, then you are not entitled to a rent abatement.

While many businesses, including commercial landlords and tenants, are working together to find a way through the pressures caused by Covid-19, the Government is also extending the timeframes required before landlords can cancel leases and mortgagees can exercise their rights to sale or repossession.

The current time-frame for commercial landlords to cancel a lease will be extended from 10 to 30 working days. The changes allow for more time for breaches or defaults to be remedied, covering the period the tenant is in arrears before notice is given, and the period required to remedy the breach before the landlord can cancel the lease and the mortgagee can exercise their rights to sale or repossession.

Insolvency Relief for Companies

  • A safe harbour for insolvency duties for company directors
  • Ability to place debts into hibernation until normal trading starts
  • Allowing electronic signatures
  • Extension of Companies Office deadlines
  • Temporary relief from compliance with constitutions/rules

New legislation is underway to help companies facing insolvency due to COvid-19 to remain viable. Relief under this legislation will include:

  • Giving directors of companies facing significant liquidity problems because of Covid-19 a ‘safe harbour’ from insolvency duties under the Companies Act. Company directors are not supposed to continue to trade whilst a company is insolvent (able to pay its debts when they fall due), but the reality is that many businesses may face insolvency, so this is a practical change to the Act
  • Enabling businesses affected by Covid-19 to place existing debts into hibernation until they are able to start trading normally again
  • Allowing the use of electronic signatures where necessary due to Covid-19 restrictions
  • Giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation
  • Giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of Covid-19

We can help you by preparing the following for you:

  • Online Business Continuity Planning Session.
  • Online Business Continuity Plan Review Meeting.
  • Complete your own Business Continuity plan- Free.
  • Finance Application under the Guarantee Scheme – POA.
  • Forecasting – POA.
  • IRD projects – POA.

We realise this is an incredibly stressful time for our clients. As long as your business is eligible, we can help you prepare your finance application and we can wait until the funds come through before we get paid.

And, very importantly, your business may qualify for NZTE funding through the Regional Business Partner Network. We are a registered service provider with the RBP network, meaning some of the additional work required to obtain business finance may be covered by grant funding.

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