IRD scheme: Rotorua businesses owe millions - and now face paying interest

Rotorua businesses still owe $45m under the Small Business Cashflow Scheme. Photo / Getty Images

An expert fears the end of an IRD interest-free loan period could be "another nail in their coffin" for businesses already struggling with the effects of the pandemic.

Inland Revenue's Small Business Cashflow Scheme (SBCS) was introduced in May 2020 to help small to medium businesses struggling with revenue during the Covid-19 pandemic.

The scheme provided a two-year interest-free loan of $10,000 initially plus $1800 per fulltime employee, up to 50 employees, meaning the first loan applicants will soon accrue 3 per cent interest on unpaid loans.

In February, the loan amount increased to $20,000.

Rotorua businesses made more than 400 applications on the scheme's first day. To date, there have been 3032 applications with 2732 loans approved with a total value of almost $45 million.

Information released to the Rotorua Daily Post under the Official Information Act revealed Rotorua businesses still owed $38.67m.

To date, 252 businesses have fully repaid about $4.1m while 364 have made at least one payment – totalling just more than $2m. Only 11 per cent of loans granted in the first month have been paid off.

Bay of Plenty-based Rodewald Consulting Ltd director Tom Rodewald said the money loaned through the SBCS was relatively minor for businesses, and the interest rate quite low.

He said the loan itself would not send a lot of businesses under.

"But combined with other factors, it's just another nail in their coffin."

He said things in the insolvency field were "pretty slow".

"That's a sign the economy is still awash with money."

Other signs, such as tax debt, increased interest rates and loan or interest repayments, including money borrowed from the Government, combined with inflation, wage pressure and staffing shortages, were pointing to problems later in the year, he said.

An increased number of insolvencies was forecast for later this year, he said.

Rotorua publican and Hospitality New Zealand Bay of Plenty branch president Reg Hennessy said those in the industry were very aware of the date for interest to "kick in".

Hospitality New Zealand Bay of Plenty branch president Reg Hennessy. Photo / Ben Fraser

He said a number would not be able to make repayments due to the impact of Covid-19 restrictions on the industry.

"Hospitality has been under two years of continuous stress and worry with no certainty of a plan to recover.

"Even when we return to a green light I'm sure the effects of this time will play out with some business owners for years to come.

Applications for the loan, administered by Inland Revenue, are open until December 31, 2023.

Inland Revenue small and medium enterprises segment management lead Sharyn Rea said it was aware of customer concerns about repaying their loans but she was unable to say how many customers raised concerns and said its initiatives were implemented in a high-trust manner.

"I encourage those customers to contact us to discuss the repayment options available."

Small business support service Upshot NZ Ltd co-owner Jill Fryer said some of those who received a loan would have forgotten when the interest was due to be applied.

"Quite frankly, a lot of them have no idea."

They were not trying to hide from it, she said, but had just forgotten and would be reminded when they got a letter from Inland Revenue.

"It will impact on them pretty seriously in that a lot are not going to have the money there to repay the loan."

Businesses had been stretched throughout the pandemic and the next six to 12 months would see more businesses "crashing".

Small business support service Upshot NZ Ltd co-owner Jill Fryer. Photo / Andrew Warner

"As soon as people get the notices they need to get hold of their tax agent. If they can't afford to pay it, work out a repayment plan and keep to it."

Business owners' attention had been on keeping the business afloat so the loan was "not on their radar", Fryer said.

She said it was a good thing the interest would only apply to the remaining balance.

Business debt hibernation helps companies and other entities affected by Covid-19 manage their existing debts until they can start trading normally again. For example, businesses may agree with creditors to delay repaying some of their debt.

Under the scheme, there were 127 liquidations from March 1, 2020 to December 31, 2021 in the Bay of Plenty.