Tuesday, July 16, 2024

Business finance guarantee scheme evaluated

An independent, interim evaluation of the Government’s Business Finance Guarantee Scheme (BFGS) has been undertaken by Business and Economic Research Limited (BERL), Treasury announced today.

The BFGS, which closed to new lending on 30 June 2021, supported the provision of loans to viable businesses that needed credit for cashflow, capital assets and projects related to, responding to, or recovering from the impacts of COVID-19. It encouraged participating lenders to lend where otherwise they may not have, through the Government taking up to 80% of the loss should the loan default.

The Treasury-commissioned interim evaluation reviewed the effectiveness and ongoing operations of the scheme.

“There is a lot of good feedback in the report that will be useful to inform any policy decisions that may be required to support potential widespread business disruption in the future,” says Acting Head of New Zealand Export Credit, Peter Rowe.

“That feedback includes that the Government backing provided confidence to the market in a time of global uncertainty, and the reduced cost of funding to banks and restructuring of debt for businesses allowed many businesses to survive through the pandemic.

“We also learned that we need to better engage sooner with Non-Deposit Taking Lenders (non-bank lenders), and that the legalistic wording of the scheme in our communication had been off-putting to some.”

The report noted that the BFGS ‘instantly played a critical role in financing businesses operating in industries hit hard by COVID-19’ including retail trade, accommodation and food services, and construction industries.

“BERL noted that for many firms, the prospect of taking on more debt was not attractive, but being able to refinance some of their existing debt allowed them to survive through the pandemic.

“We plan to share this report with counterparts in other countries who implemented similar programs to support their domestic economies.”

The Business Finance Guarantee Scheme Interim Evaluation is available here:  Proactive Release of the Business Finance Guarantee Scheme (BFGS) Interim Evaluation.

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