COVID-19: Support update

The support available to businesses is being regularly updated. Below is a summary of the updates announced through to April 2nd 2020 along with some practical advice to help you apply for loans and obtain financial support quickly.

Wage Subsidies Managed through WINZ  

The wage subsidy and sick leave subsidy schemes have been merged together, with the cap of $150k removed.  When it comes to recording the payment - put it to “Other Revenue” with no GST. 

It is expected that businesses will pay at least 80% of the normal wage to their employees over the 12-week period.  If an employee’s weekly income is normally less than the subsidy, they can be paid their normal wages and do not have to be taken up to $585.80 pw. 

Your employees have rights, so make sure you talk to them in good faith and that you take the time to understand your obligations. Have a look at the resources linked in our prior blog, and get in touch if you need a referral for expert advice in this area.  

Tax Payments 

Where a taxpayer’s ability to make a tax payment on due date is significantly adversely affected by Covid-19 and the taxpayer asked for relief as soon as practicable and also made payment as soon as practicable, then the Commissioner of Inland Revenue has the discretion to remit any interest charges. 

Our recommendation is to advise IRD before the due date for payment of your inability to make payment and to ask for a payment arrangement for those taxes.  You might wish to include the comment that you are unable to currently determine what the payment arrangement looks like because of the uncertainty over cashflows at the moment. 

Applying for bank loans 

The Business Finance Guarantee Scheme is intended to provide short-term credit to cushion the financial distress on solvent small and medium sized firms affected by Covid-19.   

The loans will be limited to $500,000 per loan for businesses with an annual turnover of between $250,000 and $80M, with a maximum repayment term of three years.  The Government will cover 80% of any loan default under the scheme, with the bank taking on only the remaining 20% of the risk.   

Application for a loan is made through the banks (or via a mortgage broker), as per normal and presumably the banks will determine whether the loans would fall within the guarantee scheme rules. The loans are intended to help with operational costs during the Covid-19 downturn, and are not for spending on capital investment. The expectation is that interest rates will be at competitive, transparent rates. 

It might take a few days for the government and banks to sort the detail on these loans but many banks are also offering temporary overdraft facilities or relief payment on credit cards and loans. Despite the fact that the government will be guaranteeing much of the risk, you can rest assured that the banks will not want to be funding their 20% of any loss. So the normal rules will generally apply – if you are a good operator and can manage cash responsibly, if the business fundamentals are good and your customer base is most likely to return to you after lockdown then you will be more likely to obtain finance. 

To improve the chances of success you should still go to your bank fully prepared with current financial reports, forward forecasts, and a clear plan showing how your business will recover. Our advice is to consider the following points and include them in your application: 

•   Don't be too optimistic in your projections, instead lean towards the side of pessimism. Do not forecast an immediate bounce back, as this will likely casue the bank to question your assumptions and result in delays. As an example, you might forecast recover to 60% of domestic revenue by say October, and then recovering to 100% at around 12 to 18 months into the future. In the end, your forecast needs to reflect the impact on your unique business.    
  
• Explain what changes you’ve made to get your house in order. Examples here would be to detail your efforts to reduce overheads to a more manageable level as well as the other changes you've made to improve your cash flow.   
  
• Show the bank how well then business is managed. To an extent, confidence is gained from a good track record and a proven leadership and governance team. Therefore, you should emphasise the value of your key people, the governance you have in place, track record of the business.  
  
• Know how much money you need and keep the request realistic. These loans are to fund operational activity, so a good guide may be an amount of around 4-12 weeks of revenue.  Further, you should clearly define the amount that is needed and how it will be used.  
  

Some banks are opening for business- albeit for short hours and possibly not every day.  However, the queues are long and their call centres are overloaded.  If you do not have a good relationship with a person at the bank that can help, our advice has generally been to use a mortgage broker. A broker can often source better deals than the advertised loan terms.  We know a number of really good mortgage brokers so call us if you want a referral – and that especially applies if you do not have a personal relationship with a bank manager but need some short-term financial support. 

Your business – keep your eye on the ball 

Keep close to your employees and customers.  Your response in a crisis speaks volumes about your leadership skills and your brand values.  If you haven’t already done so, consider having regular Zoom meetings with your team to maintain contact and keep the team spirit alive.  Touch base on a personal level as well to make sure that your people are coping with the lockdown and maintaining their health and well-being. 

The same thing applies to your customers – the lockdown is not going to last forever, but the economic and financial impacts will be around for the next year or two.  Talk to your customers to better understand how they are faring and what their needs are going to be, both now and in the future.  Not only will it help cement your relationship, but it might also inform what you can be doing that will make you stand ahead of your competitors and mitigate the impact of the recession on your business.  Who knows, you might have an epiphany that radically changes how you do business. 

Finally, make some time to develop a ‘recovery plan’. It is important to ensure your business survives the downturn but also important to have a plan in place to guide you once the fog starts to lift. Work through it with your team and then get doing. You’ll find that this makes clear the key choices that you need to make to be well positioned and ready to move when the fog lifts. As a starting point, consider these four questions:   

What problems or inefficiencies can you eliminate from your business?  

What external threats can you manoeuvre to avoid?  

What key aspects of the business should you preserve?  

What do you want you achieve?   

There is a lot support available to your business and for some other ideas make sure you check out our previous blog here. If you need some help to manage through the COVID emergency, or if you are looking to put together a plan to get moving again, then make sure you pick up the phone and give us a call today.