This article is part of the ASB Business Insight series.
Small and medium-sized businesses in Auckland are holding their breath as they near the crucial Christmas trading period. It is make-or-break time for many.
Small retailers and hospitality operators in particular are hoping Auckland will be in full swing by early December so they can return to some form of normal trading and pick up the pieces.
Tim Deane, ASB's executive general manager business banking, says people will hold on and hope Christmas trading goes well. "If it doesn't, then business owners will be facing their first winter after lockdown and that's when the impact will hit.
"The same happened with the 2008 global financial crisis (GFC) – the full impact wasn't seen till the following year."
It's been a long, hard road for businesses since the latest Covid lockdown began in mid-August – some being able to switch to online to keep their business going, and many others relying on the government and bank support to stay alive.
Shops were able to open under Alert Level 3 Step 2, while bars, cafes and restaurants could operate with a limit of 50 people at Step 3.
Deane says the lockdown period for business has been the toughest since the GFC. "There's no question people are doing it hard and it's very difficult because of the uncertainty of re-opening – when it happens and what it will look like."
Businesses received a booster when the government doubled the Resurgence Support Payment and continued the wage subsidy through the transition period of the new traffic light system.
There was also a $60 million package for the regional business partner programme including $10m for mental health and wellbeing. Businesses can apply for up to $3000 worth of advice and planning support, and then receive a further $4000 to implement that advice through the Regional Business Partner Network.
From November 12 the eligible businesses are paid the resurgence support payment fortnightly until Auckland moves into the new framework. It means each business receives $3000 plus $800 per full time equivalent, up to 50 employees. This makes the maximum fortnightly payment $43,000.
ASB senior economist Mark Smith says, "Tourism and hospitality sectors world-wide have been adversely impacted by Covid-19 given social distancing requirements and lockdowns, whereas durable retail has generally flourished.
"The impacts of the Delta outbreak in New Zealand have been highly uneven across sectors and regions of the economy. MBIE figures for October 2021 place Auckland card spending close to a third below pre-pandemic levels (October 2019) versus a 7 per cent fall for New Zealand. In most regions, spending in October 2021 was above October 2019 levels.
"Living with Covid-19 will continue to require significant changes and adaption to business operations, particularly those with customer facing operations.
"While New Zealand retail electronic card spending rose 10 per cent in October, spending was still 10 per cent below pre-Delta levels (i.e. July 2021), with hospitality (40 per cent lower), apparel (37 per cent lower) and services sector spending (27 per cent lower) particularly hard hit."
ASB services a quarter of the country's 550,000 small and medium-sized companies (up to $30m in turnover).
Deane says there has been a smaller uptake of financial support packages from the bank compared with the first lockdown last year. Then, no-one knew what was ahead and businesses had to get themselves sorted by focusing on and minimising their costs. They also needed to understand what support was available for them.
"We recently asked some of our small-medium business customers and found almost 60 per cent were prepared for the Covid restrictions. They worked from home, changed their cash flow and moved their businesses online."
Deane says fewer businesses wanted temporary overdrafts or deferred loan payments. "In many cases, additional debt isn't the answer. They are more interested in obtaining advice on maintaining their business and then thriving with scenario planning, cash flow management, and mental health and wellbeing resilience.
"What they need is the certainty about when things will open up again, and then they can start to plan and do the maths on how long they can hold off before making radical changes to their business.
"The key to getting the country open again is supporting the vaccination programme to help businesses get back to something like normal."
The hardest-hit businesses have been those operating in the hospitality, tourism, entertainment and retail sectors, and allied health professions. Many of them require face-to-face contact to conduct their business, such as hairdressers and gyms.
"They need to keep their costs as tight as possible, and we continue to work with them," says Deane. "Some of our customers have zero income apart from the government support and have dipped into their `rainy day' cash reserves. They may have also used the deposit they were saving for a home to keep their business afloat, or they are selling assets to generate cash."
Deane says the bank is committed to supporting the productive economy. Reserve Bank figures show that total lending to businesses shrank 1.5 per cent over the past 12 months, but ASB's lending grew nine per cent.
The bank reinstated the same financial support (as in the first lockdown), such as temporary overdrafts at concessionary interest rates, changing loans to interest only and deferring payments.
ASB also introduced low interest rate temporary overdraft facilities, waived merchant fees for contactless debit card payments until December 31, and held the floating business rate to the end of the year – even though its funding costs increased because of the rise in the official cash rate.
To cater for the increased interest in business advice, ASB expanded the Business Hub on its website and provided more information, guidance and tools such as podcasts, a government support finder, and a series of 'Borrow The Expert' seminars.
The Business Hub has been popular, with more than 100,000 visits to the site since the first lockdown last year.
"We want businesses to get back in the driving seat," says Deane. "They need to work with their bank, accountant and other advisors to test their thinking and put together a plan they can focus on and control."
"We know businesses are holding on and hoping Christmas and summer holiday trading goes well. That's why it's critically important for all New Zealanders to continue to back small business and support local as we approach the holiday season."
For more information, visit the ASB Business Hub: asb.co.nz/businesshub