So just to recap, the Government came out at the beginning of May with the promise of what was tantamount to a free to low interest loan. The main points of which were:
- Loans will be up to a value of $100,000.
- The scheme will be administered by the IRD and will be available to firms employing 50 staff or fewer.
- The most companies can borrow will be $10,000 plus $1,800 for each full time employee.
- Loans will be interest free if paid back within a year, otherwise interest will be charged at 3% per annum up to a maximum of 5 years and repayments would not be required back within the first two years.
- Scheme will be available to companies and sole traders.
- Applications for loan will open 12 May 2020 and run for one month, although possibility may be extended.
Nothing has changed in terms of the above content, but we can now report on how this is going to work from a practical view point. The key issues are:
- You must apply for the loan through your My IR login, unfortunately we cannot apply on your behalf.
- IRD hope to pay the loan out within 5 days of your application and it will be paid into the business bank account IRD has for your business.
- The IRD has given an example of how the value of the loan will be calculated.
If you had 8 full time and 4 part time employees, you would have received $73,036.80 under the wage subsidy pay out. So for IRD purposes, they take the $73,036.80 and divide that by the wage subsidy per person of $7,029.60, this comes out at 10.4, which is rounded up to 11. So you would get $10,000 for the business plus $19,800 for employees ($1,800 * 11 employees, giving a total of $29,800 ($10,000 + $19,800).
Some other concerns that the IRD has noted around the general application are:
- Provide your New Zealand Business Number (NZBN) – businesses and organisations without an NZBN will need to obtain one before applying for the loan –you would have had one for the wage subsidy.
- Confirm your business or organisation is experiencing a minimum 30% decline in actual or predicted revenue from Jan 2020 to June 2020 as defined in the wage subsidy scheme.
- Confirm your business or organisation existed before 1 April 2020.
- Confirm your business or organisation is viable and ongoing, you have a plan to ensure it remains viable and ongoing, and you are keeping evidence we can use to check this- this will mean you will need to have a budget going forward, which analyses where you are currently and where you hope to be at 30 September 2020 and 31 March 2021. This is all related to solvency.
- Confirm you’ll use the loan to pay for core operating costs (including, but not limited to, rent, insurance, utilities, supplier payments, or rates).
- Confirm the loan will not be passed through to the shareholders or owners of the business or organisation, for example, by a dividend or a loan to the shareholders or owners. This is very important.
- Confirm you have the appropriate authority to commit your business or organisation to this loan.
- Confirm you are 18 years or over and have the legal right to apply for this loan.
- Confirm you are aware, that we (IRD) are not providing financial or other advice regarding this loan.
- Agree to the loan terms – this is a 9 page document and one you need to read through before applying.
If you have any problems or concerns please do not hesitate to contact us. To help us better manage the current volume of enquiries, we have an “Ask a Question” pop-up button featured on our website with the aim of helping our clients. Please fill in our contact form and one of our team members will be in touch as soon as possible.