SBCS: Interest Free Business Loans - Are You Eligible And Should You Apply?
Our government seems all too aware of the impact that the COVID-19 restrictions are having on the business world.
Which is why, as restrictions persist and the threat of COVID-19 remains present, they have introduced the Small Business Cash Flow Loan scheme. This directive is designed to help boost business cashflow and recover some economic loss in the short term.
The scheme is specifically designed for small businesses (including sole traders). It is a swift response to the fact that many small businesses are being crippled under the impacts of COVID-19.
The loan has been put in place to be used for working capital for businesses, such as rent and other fundamental expenses.
So, is your business eligible for the SBCS loan scheme? And if it is, should you apply?
Let’s look into those very questions now.
SBCS: Interest Free Business Loans - Are You Eligible And Should You Apply?
Are You Eligible?
The Small Business Cash Flow Loan (SBCS) is available for small businesses on a one-off basis.
Of course, there are some criteria that you must meet in order to place a successful application. These criteria are:
The first requirement is a consideration of the key word ‘small’. In order to be eligible, businesses must have 50 or fewer full time equivalent employees.
Just like the wage subsidy scheme, you must be able to prove you have experienced a 30% decline in predicted or actual earnings (compared to the previous year) during one month between Jan 2020 and June 2020.
Businesses who applied and received $351,480 or less from the wage subsidy scheme are eligible to apply, as this amount equates to 50 full-time employees.
Those eligible under the scheme are entitled to a maximum amount of $10,000 plus $1,800 per employee. You also don’t have to take the full loan amount if you don’t want to.
Looking at it simply, if your business qualified for the initial wage subsidy, then it is likely that you will qualify for the SBCS also.
Conditions Of The Loan
While the government want to help small businesses, they still need to make sure they are making a sturdy investment. So, a precaution they have taken with this scheme is to confirm that businesses are ‘viable’ before offering the funds.
To ensure the loan will eventually be repaid, Inland Revenue is requesting that directors/owners are declaring the viability of their business when the application is made.
That means, you need to be able to forecast your business will still be capable of running successfully through these difficult times and will recover. In order to confirm this, you should have reasonable knowledge of how your business is currently managing and a plan for ensuring your company will remain feasible.
While these loans are being called ‘interest free’, it is important to understand that the ‘interest free’ aspect is only in place for the first year. After the first year, the loans will be subject to interest at 3%.
The rationale behind this stipulation is that most businesses will be able to repay the entire loan in the first year. If they are unable to do so, they will be charged interest from the entire term of the loan and will be required to make regular repayments.
The icing on the cake is that the interest rate is very reasonable, so even if repayments stretch beyond the first year, the interest costs will not be enormous. The IRD have also given a generous 5-year timeline for the loan to be repaid in full.
What To Remember
Applications for this loan are only open between the dates 12 May 2020 to 12 June 2020. With only 4 short weeks to apply, it is important to make an efficient decision on whether or not your business requires this assistance.
Remember, that this is not a grant or a subsidy like the wage payments were. This is a sum of money that will have to be repaid eventually. You should only take the funds if your business has need for them and if you can be certain you will be able to pay them back.
It is vital that you read the fine print of the loan terms. One of the conditions highlights that restructuring of the business will automatically default the loan agreement and the outstanding balance on the loan will be repayable immediately.
Take time to do extensive research into the direction your business is heading before you consider applying. It is also worth consulting with your accountant or financial adviser to check if the loan is the right move for your business.
In a situation of such uncertainty, it is difficult to assess where your business will be in a couple months’ time. Things can change weekly, or even daily, in these circumstances. Any loan, and especially during this time, should not be applied for without serious consideration and advice from an accounts team.
If you have any questions about your eligibility or whether you should be applying for the SBCS, don’t hesitate to get in touch with the team here at Core HR. We are more than happy to give advice based on your individual circumstances.