Innovation in Business Lending

Need Cash?

We’re seeing a number of businesses struggling with cashflow this year, sometimes because customers are not paying promptly, sometimes because growth strategies always need upfront investment.  The most common form of working capital finance has traditionally been bank overdraft secured over the business and director guarantees, but there are some new players on the block. 

Tax-based working capital 

Many of our clients are familiar with tax pool agents who basically “sell tax” which has been paid as at a certain date in order to minimise interest and tax penalties.  It is also possible to pay provisional tax on each instalment date to the tax pool agent (instead of directly to IRD) and do a tally up once the final tax position has been ascertained.  Any tax overpayments can then be sold via the tax pool agent to other taxpayers resulting in a better interest return.  This approach has generally been used where the tax payments are on the higher side. 

Tax Traders, a tax pool agent, have developed an innovative short-term working capital funding business enabling you to basically borrow against provisional tax payments.  

It’s called  (check them out here) and you might have seen them advertising on TV since their launch in March this year. 

No forms to fill in, accessible within a few days of sign-up, flexible repayments and attractive interest rates – what’s not to like? 

Here’s how it works. 

• Instead of paying your tax direct to IRD, you pay it to a tax pool agent (the money’s held in a trust account and is perfectly safe and secure) 
• You can then borrow up to 90% of the provisional tax you’ve paid in the previous 12 months – access is speedy and the money should be in your bank account within 3 days. 
• On your terminal tax payment date (7 April if you have a March balance date), the tax payments are transferred to IRD. 
• Your Taxi loan sets up automatic monthly payments and an initial nine-month repayment term, although these can be varied.  The security for the loan is your three most recent provisional tax payments so it will not have any impact on existing bank funding arrangements.

Taxi funding is only available to profitable tax-paying entities who pay their tax to either Taxi or Tax Traders.  It cannot be used by a business that pays tax under the AIM method.

It would be ideal for businesses that are seasonal in nature, perhaps to cover that slow trading period over December/January.   

With the second provisional tax payment coming up in January 2025 this is a good time to consider whether you want the flexibility to draw down most of your tax payments to meet working capital needs.   

Invoice Financing 

Invoice funding has been around for a number of years, but BNZ is the only main trading bank that offers this type of lending to businesses.  Their Cashflow Plus finance is offered to BNZ business customers doing over $2.5M turnover and wanting flexible finance of at least $250,000 with interest rates below normal overdraft rates. 

Cashflow Plus uses an api that integrates with Xero & MYOB to review customer invoices – they will fund up to 80% of invoices to business customers for 90 days, as a general rule.  Interest rates will be below ordinary overdraft rates, significantly so if the facility is under $500,000. 

The available facility is updated and visible daily based on your receivable's balances - one of the advantages of having an integrated api. 

The set up of a Cashflow Plus facility is a bit more complex than setting up an overdraft but a short-term overdraft can be provided if funding is needed quickly.  The bank will hold a specific security charge over all invoices and unsupported personal guarantees of directors/shareholders, so there will be a need to involve your lawyer in the process.   

This type of working capital financing is relevant for all businesses, except construction companies invoicing under the Construction Contracts Act.  It is particularly relevant to any business that wishes to remove personal assets from the bank’s business funding securities.