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Making your application to the Small Business Cashflow Loan Scheme

Updated: May 11, 2020

The Small Business Cashflow Loan Scheme will provide assistance of up to $100,000 to firms employing 50 or fewer full-time equivalent employee. The amount is calculated as $10,000 per business + $1,800 per employee, the money can be used for core business operating costs. Loans will be interest-free if they are paid back within a year. The interest rate will be 3% for a maximum term of five years. Repayments are not required for the first two years.

Applications will open on 12 May and will be managed by Inland Revenue, IRD information page here.

  • Eligibility criteria will be similar to those of the wage subsidy scheme therefore if you were eligible for the wage subsidy scheme you are most likely eligible for this scheme (but as of 8.00am on 11 May 2020 the final eligibility criteria is still not available)

  • Businesses will have to declare that they are a viable business

  • Businesses will have to enter into a legally binding loan contract with Inland Revenue

In deciding to apply for this scheme one of the key considerations is whether your business is a viable business? Alongside this you should also determine if your business should be taking on more debt?

What is a viable business? We should look to the new COVID-19 Safe Harbour provisions in the companies act

A Bill introduced to Parliament on 5 May 2020 proposes a temporary ‘safe harbour’ from personal liability for directors of companies facing insolvency owing to COVID-19. The terms of the ‘safe harbour’ provisions are as follows.

Directors’ decisions to keep on trading, as well as decisions to take on new obligations, over the coming 6 months will not result in a breach of duties if:

  1. in the good faith opinion of the directors, the company is facing or is likely to face significant liquidity problems in the next 6 months as a result of the impact of the COVID-19 pandemic on them or their creditors

  2. the company was able to pay its debts as they fell due on 31 December 2019

  3. the directors consider in good faith that it is more likely than not that the company will be able to pay its debts as they fall due within 18 months (for example, because trading conditions are likely to improve or they are likely to able to reach an accommodation with their creditors).

Directors must be aware that these temporary safeguards do not release them from their other obligations and duties under the Companies Act 1993. These include acting in the best interests of the company, and their duty of good faith.

Directors can still be held accountable for a serious breach of these duties, and for dishonestly incurring debts.

The decision on viable business can only be made based upon the facts known as at the date of your application.

Should you be taking on more debt?

It is important to recognize that the Small Business Cashflow Loan Scheme is required to be repaid.

Therefore, you need to decide:

1. Does the company need the funds?

2. Where does it fit in the overall debt mix?

3. How will you repay the loan?

Our view is that we would be recommending this scheme as part of the debt mix – it just might be used instead of bank funding or it may be on top of bank funding, the key is ensuring that you have the ability to repay all the debt your business is incurring.

What you need to do

To determine if your business is viable you should as a minimum prepare:

A simple business plan

  • Open a word document and create three columns labelled High, Medium and Low in each column, list your perspective of what business will be like in the next three months, due to uncertainty you will need a high, medium and low trading scenarios

  • What you expect to happen to your market and customers

  • Where are the opportunities

  • What areas you therefore need to make decisions

  • Plan around generating profitable revenue and actions you would take under each scenario (high, medium, low) and each segment of your business (customers, supply, employees) to maintain the viability of your business. Keep it simple

A financial plan

  • A monthly profit and loss forecast for 31 March 2021

  • A monthly cashflow forecast for 31 March 2021

  • These forecasts should have a high, medium and low scenario for your business

A Longer term view

You now need to repeat the above but taking a longer term view, again keep it simple but what is your perspective under each scenario looking out over the next 12 to 24 months for your business plan and your financial plan

If you are considering restructuring your business we recommend deferring any final decisions until Friday 15 May to enable you to see if the Government has delivered any further business support measures in the budget.

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