Monday, February 26, 2024

Loans support package announced for weather-hit businesses

Further support has been announced today for businesses, including growers and farmers affected by the North Island weather events earlier this year.

Cyclone Recovery Minister, Grant Robertson said business had been hard hit by the severe weather events and the impacts continue to be felt, particularly for those in the horticultural sector.

He announced a support package which includes the underwriting of bank lending and cheaper finance options to ensure the long term survival of critical regional industries.

The package was developed with primary producers and will provide relief to key growers, farmers and businesses and help their regions continue to recover, Mr Robertson said.

“There will be three components for different types of support: a loan guarantee scheme in partnership with banks and other lenders who choose to participate, and a concessionary loan and equity scheme run by Kānoa to help hard-hit businesses get to a position to be able to re-engage with their banks and work toward being cashflow positive again,” he said.

“The North Island Weather Events (NIWE) Loan Guarantee Scheme will provide relief to affected firms seeking commercial lending. This scheme leverages the Crown’s financial strength by carrying 80 percent of the credit risk on covered loans, allowing banks to reduce interest rates and offer more flexible terms.”

The Government’s underwrite will support loans of up to five years agreed by businesses and their banks of up to $10 million from the scheme, including refinancing of existing loans. For example, a reduction in interest rates of 0.3% to 1.5% would be equivalent of $9,000 to $45,000 in interest cost savings per year for the average supported firm, based on borrowings of $3 million.

Over the five years the Scheme is in place, these savings could total between $45,000 and $225,000 for a firm with an average amount of debt, providing meaningful relief, the Minister said.

“Further details of the scheme will be announced in coming weeks. We are targeting around the end of July for the scheme to be up and running, providing time for banks to get systems in place. In the meantime, we expect customers will be able to register their interest in looking at utilising this scheme with their bank.”

“Different businesses in the same industry, let alone across different industries, have all been affected by these weather events differently, meaning they all need slightly different recovery plans. That’s why this scheme isn’t going to be overly prescriptive and instead is about supporting banks and their customers to be able to get loan agreements in place. It is one part of our support for businesses affected by the weather events.”

The package also includes the NIWE Primary Producer Finance Scheme to provide access to capital for affected growers and farmers unable to access lending without further support.

The funding will be targeted towards severely affected businesses that have a reasonable likelihood of being commercially viable, but cannot currently access commercial finance, said Emergency Management Minister, Kieran McAnulty.

“Many businesses severely affected by the weather events are likely to be commercially viable with the right support,” he said.

The scheme enables the Government to provide concessionary loans and equity finance for land-based primary sector producers up to $4 million per business from a pool of up to $240 million set aside in total.

“It will provide a way for businesses to fully re-engage with lenders at a later date, once we have helped them get back on their feet. This will in turn contribute towards their recovery, and provide better regional, social and economic outcomes in cyclone-affected regions,” Mr McAnulty said.

Horticulture New Zealand chief executive, Nadine Tunley said the package was the result of cross sector involvement.

“This package will hopefully provide vital help to businesses across the areas affected by the weather events in the North Island, including horticulture businesses,” she said.

“We know many businesses are still grappling with funding repairs and rebuild efforts. We hope this package and announcement will help relieve the pressure and stress people are facing, so they can get on with the recovery and provide jobs for people in regional New Zealand.”

LeaderBrand’s chief executive, Richard Burke, also welcomed the package.

“Businesses like ours provide hundreds-of-thousands of jobs for people in the regions. In our case, we also supply the whole country with healthy, fresh food. Being supported in this way to get on with the recovery is a win-win for everyone involved,” he said.

Agriculture Minister, Damien O’Connor, acknowledged the input from those affected.

“This package is the result of working together with affected sectors to identify the most suitable schemes for viable businesses, particularly when dealing with their banks. I want to thank them in helping design tangible solutions for business and provide certainty for those going through extremely challenging circumstances,” Mr O’Connor said.

Minister Robertson said the package had been carefully designed to ensure banks continue to play an integral role in the recovery process.

“We are committed to helping affected regions recover. Around $2 billion of support has already been committed so far, including $74 million in grants to farmers and growers and a $1 billion flood and cyclone recovery package as part of Budget 2023. Another $6 billion in initial funding has been committed for National Resilience Plan to focus on building back better from the recent weather events.”

Cabinet has also voted to establish a Government Inquiry under the Inquiries Act 2013 to review the response to the North Island severe weather events.

“It is normal practice for local Civil Defence to review the response to a severe weather event, regardless of size. Given the significance of Hale, Auckland Floods and Gabrielle, it is appropriate that a government inquiry is set up. It will be led by former Governor-General Sir Jerry Mateparae,” Minister McAnulty said.

“Affected communities, including rural, Māori and Pacific communities, have raised concerns about communication and support during the response.

“With climate change we are seeing more frequent and complex weather events across New Zealand, and because people’s lives and livelihoods are at stake, it is critically important that our emergency management system is fit for purpose and ready to respond to future emergency events. There are lessons to be learned. It is important we incorporate these into our systems so we can continue to improve.”

The fine print

NIWE Loan Guarantee Scheme design elements:

  • An 80 percent Crown guarantee
  • A five-year guarantee period, meaning loans issued between 1 July 2023 and 30 June 2024 would be covered by the guarantee for five years from the date of issue
  • New and refinanced lending, meaning lenders could refinance existing lending under the guarantee in addition to issuing new loans under the guarantee
  • New customers, meaning lenders could offer loans to new customers and refinance lending that borrowers have with other lenders
  • Limits to the amount of lending to each borrower of $10 million, (with exceptions on a case-by-case basis), from each lender and across the entire Scheme
  • Principled targeting requirements, including that eligible firms must be located in impacted NIWE regions, be classified as having been materially financially impacted, and meet their lender’s credit assessment criteria (ie, that they are lendable)
  • A general requirement for lenders to pass on lower interest rates reflective of the benefit provided by the guarantee.

Eligibility criteria for NIWE Primary Producer Finance Scheme (Concessional Loans and Equity Injections)

To be eligible, a business must:

  • Have incurred losses of 30 percent or more of their uninsurable productive capacity because of the NIWE
  • Demonstrate its loss of viability was due to the NIWE and not a pre-existing issue
  • Demonstrate it has a reasonable prospect of returning to viability (i.e. restored positive cash flow) over a reasonable time period
  • Demonstrate it has sought and failed to receive lending from commercial lenders and that it does not have access to sufficient capital through other means (eg, through a firm’s own balance sheet capacity). For the avoidance of doubt, a firm would not be immediately eligible for support if it has simply received less financing that it desires from its commercial lender. In these scenarios a bank would have determined that the firm was viable but at a smaller scale and therefore not part of the target cohort.
  • Demonstrate that it took reasonable steps ahead of the event to mitigate or avoid losses, such as insuring assets where there are readily available insurance products;
  • Demonstrate its commitment to improve resilience to similar risks in the future, such as flood risks; and
  • Be a producing land-based primary sector entity, located partially or wholly in the following affected regions: Northland, Auckland, Waikato, Bay of Plenty, Tairāwhiti, Hawke’s Bay, Tararua, Wairarapa (in line with other NIWE-related business support to date).

Latest Articles