The Small Business Cashflow (SBC) loan was launched in May 2020. Up to $100,000 was potentially available via unsecured loans for businesses with 50 or fewer full-time staff. The loans were interest free if repaid within a year. Thereafter an interest rate of 3% has been charged for a maximum term of five years, with repayments not required for the first two years.
It’s been reported that more than 129,000 businesses were issued loans totalling $2.4 billion. The average loan amount approved was $17,000 but many were much larger and of course some smaller too.
Inland Revenue (IRD) says the final repayment date is fast approaching. They say most borrowers took out a loan in May and June 2020 with five years to repay the loan. That means many people will reach their cut off point from June this year.
While over 50,000 of these loans have already been paid off, there are many small businesses and sole traders that have struggled post Covid and therefore there is still over $950 million still owing.
The largest number of loans were taken out by Auckland businesses where Covid lockdowns were longer and IRD says a high proportion of borrowers are sole traders and small businesses employing between two and five full-time staff.
Inland Revenue (IRD) says businesses that borrowed money via the Small Business Cashflow (SBC) loan scheme face loan default if they don’t pay them by June and they will actively be taking steps to recover these defaulted loans.
So What Should You Do Now?
The answer would be to repay the loan if you can, but that’s not a realistic proposition for many sole traders and small business owners.
The first thing to do is to check your loan balance in your myIR.
If you can see that you have loan arrears then we would suggest you speak to your accountant or request a repayment plan by contacting the IRD through the secure channel in their myIR account to discuss options.
From June Inland Revenue will default a loan if it has not been paid off. The default interest is calculated based on use of money interest of 10.88% plus standard interest rate of 3%.
So that is a rate of 13.88% which is high, but not much higher than most business overdrafts and cheaper than many business loans.
If You Also Have Tax Arrears
If you also have tax arrears then this might be a good time to review all that you owe IRD and look at getting a tax debt loan to tidy things up and get you back to a current position.
This will allow you to focus on your business and making the most of what is expected to be a period of economic recovery later in the year.
It might be time to contact me to discuss your IRD debts.