Legal Updates


On 1 May 2020, the Government announced a new initiative to help small businesses grapple with the devastation inflicted by COVID-19 and the Government’s response to it: the Small Business Cashflow Scheme (SBCS).

The aim of the SBCS is to provide further cashflow support to small businesses by assisting with meeting immediate needs and fixed costs.  The SBCS supplements other initiatives announced by the Government, including the Wage Subsidy Scheme, Business Finance Support Scheme and a range of tax changes.  However, it appears the primary driver for implementation of this new initiative is addressing weaknesses in the original Business Finance Support Scheme, which has led to low take-up by businesses and a reluctance to lend by retail banks.

What is the SBCS?

Under the SBCS, the Government will provide loans on borrower-friendly terms to small-medium businesses affected by COVID-19.  The key terms are as follows:

the Government will lend up to $100,000.00 to qualifying businesses;

  1. each qualifying business will be eligible for at least $10,000.00, with an additional $1,800.00 available for each full time equivalent employee of the business;

  2. loans will be interest free if they are repaid within 12 months.  After 12 months, the interest rate increases to 3% p.a.;

  3. the maximum term of the loan is 5 years, but no repayments are required for the first 2 years; and

  4. Inland Revenue will administer the SBCS on behalf of the Government.

Who is eligible for the SBCS?

The scheme is only available for businesses with up to 50 full time equivalent employees (including sole traders).  Beyond that, the eligibility criteria are the same as for the Wage Subsidy Scheme, except that businesses must also:

  1. declare that they are a viable business;

  2. declare that they will use the loan funds for core business operating costs; and

  3. enter into a binding loan agreement with the Government.

As with the Wage Subsidy Scheme, the SBCS will be audited.  Therefore, we recommend that businesses carefully assess whether they are eligible and document their assessment and decision-making process.  Businesses will also need to ensure that loan funds are only used to meet core business operating costs and document use of the funds, as that will be another focus for future audits.

Unlike the Wage Subsidy Scheme, the SBCS is not a grant or subsidy, but instead is a loan which must be repaid.  As a result, businesses will need to carefully assess whether they will be able to meet their repayment obligations when the application is made and any funds received are spent.  For many businesses, that assessment may not be as easy as it seems; if a business is not viable and funds available under the SBCS will only delay an inevitable business failure, it may not be appropriate to apply for a loan under the SBCS.  Business owners and company directors may face personal liability for improperly using the SBCS, including for:

  1. applying for a loan under the SBCS when the business did not meet the eligibility criteria;

  2. allowing businesses to borrow under the scheme when it was objectively clear the business would not be in a position to repay the loan; and

  3. misuse of SBCS loan funds (i.e. spending on non-core business operating costs).

Where to from here?

Applications under the SBCS are expected to be open from 12 May 2020.  Businesses will only have 1 month to apply for loans under the SBCS, but that deadline may be extended. Applications will be made through Inland Revenue’s myIR portal, a link to which can be found on IRD’s website.

The Government is expected to announce further detail about the SBCS, including the eligibility criteria, in the coming days.  We will keep an eye on developments and keep you informed as they arise.

If you have any questions relating to this article, or queries generally, please contact Sarah, Jono or David.