Applications open today for one-off government loans to assist businesses impacted by COVID-19.
If your business has 50 or fewer full-time employee equivalents (FTE’s) and if it was eligible for the COVID-19 wage subsidy, you’re likely to also be eligible for the SBCS as the criteria are almost identical.
Unlike the Business Finance Guarantee Scheme (BFGS) loans announced in early April which are administered by the banks, SBCS loans will be administered by IRD. This is a good thing given that banks appear to be unwilling participants in the BFGS, which makes it difficult to actually get these loans across the line. The SBCS application process is much simpler – and the proceeds will be easier to access through IRD.
Details of the loans in a nutshell are as follows:
- $10,000 plus an additional $1,800 per FTE – up to a maximum of $100,000
- Interest free if the loans are paid back within a year – although if the loan isn’t fully repaid in one year, you will be charged interest from day one
- Interest rate of 3% pa – for a maximum term of five years
- No repayments required for the first two years – although you can make voluntary payments
- After 24 months, you will need to make regular principal and interest repayments over the remaining term
How Many FTEs in my Business?
Here’s how to determine the number of FTE’s in your business: divide the wage subsidy amount you received (or would have received if you applied for the wage subsidy for all your employees) by $7,029.60. Round the result up to the nearest whole number – and for the purposes of this exercise, that’s how many FTEs you have.
Business Viability
To be eligible, your business needs to be viable and you must have a plan to ensure it remains viable. Essentially this means the directors or owners must have good reason to believe the business is likely to be able to pay its debts as they fall due over the next 18 months.
Tax Implications
IRD cannot make adjustment to the proceeds of your SBCS for existing tax debt, so don’t let that hold you back from applying.
SBCS loan proceeds are not subject to income tax or GST.
You will be able to claim normal tax and GST deductions for expenditure funded by the loan.
Here’ How to apply
- Log into your myIR account with IRD. If your businesses doesn’t have a myIR account, you will need to create one here >>> to apply.
- Go to the ‘I want to’ section, and select ‘Apply for the small business loan’.
- We’re told that most applicants will receive their loan payment from IRD within five working days.
As your tax agents, we are not able to apply for an SBCS on your behalf – you must go through the application process yourself. Applications originally closed on 12 June – although this has been extended to 24 July.
There are some conditions – and you will need to confirm among other things that your business existed at 1 April, that it experienced the decline in revenue as defined in the wage subsidy, that it is viable – and that the loan will be used to pay for core operating costs and not be passed through to the shareholders or owners of the business. Also, be aware that there will be penalties applied if loan repayments aren’t made as they fall due after the two year repayment holiday.
If your business is eligible, this is a no brainer.