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Mixed views on interest-free loans

In a Times-Age article last week, motel-owner Mark Wellington called Government measures to help small and medium-sized businesses “a bandage”, when more serious interventions were needed. PHOTO/FILE

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Small businesses in Wairarapa could be set to receive a decent cash flow boost after the announcement of a new plan to provide interest-free loans to businesses with less than 50 employees.

In a move poised to lessen the financial impact of the covid-19 crisis, businesses will receive a flat $10,000, with a further $1800 available per equivalent full time employee.

These will be loans, not grants, totalling up to $100,000 per business, with zero per cent interest if paid back within one year.

The support has been mixed, with some commentators seeing them as delaying the inevitable, or being misappropriated.

One anonymous source even said they knew of someone planning to use the business loan to buy themselves a deluxe shed.

In a Times-Age article last week, motel-owner Mark Wellington called these measures “a bandage”, when more serious interventions were needed.

Alastair Scott, MP for Wairarapa, said he felt the government’s revised loan programme was “good money going after bad”.

“The problem with it is that a lot of this lending that’s going to take place, the hundred thousand dollars, will never be repaid,” Scott said. “It’s going to be good money put into failed or failing businesses.

“So, it’s good money going after bad: taxpayer money that won’t come back.

“All these policies are good in a way because they cushion the effect, but a lot of it is inevitable – so the sooner you get yourself out of that situation the better, rather than borrowing and getting mortgage holidays, hoping for something to turn up.

“It’s good that it allows people to adjust and think about things, but it’s bad because it compounds the situation.

“The interest and the loans are all going to start building up very quickly, whereas if they cut their losses today, they wouldn’t have that pain of waiting another three months.”

Becks Sayer, chairwoman of Business Wairarapa, was supportive of the measure, but urged caution.

“People need to remember that it’s a loan, and take these opportunities looking at the big picture, not just think it’s going to be free money,” she said.

“If they didn’t have a very viable business before this, they certainly shouldn’t be taking a loan to essentially prolong the inevitable.

“I think there’s a potential there that people may take advantage of the cheaper money to pay back more expensive money.

“As long as they meet the criteria, they’re good to go, so I guess there are some opportunities to use the money for purposes other than what it’s designed for.

“Some of the banks have had inquiries from customers wanting to pay down their more expensive UDC debt, and borrow the money through the government-backed scheme.

“At the end of the day, if it means that there’s more money in the economy, and people are doing better, and maybe using the money for better purposes, then I don’t think that’s a bad outcome.

“Any help that the government can give in my mind has to be positive: it’s there, it’s a helping hand.

“The only concern is that there’s the potential that somebody could borrow the money and still go bust, because they don’t make the decisions they need to make right now.”

Last week, Stuart Nash, Minister of Small Business, said, “the scheme will be administered by Inland Revenue who will be taking applications from May 12, and will pay out very shortly thereafter.

“By helping small and medium-sized businesses to pay their fixed costs, in addition to the tax changes, wage subsidy, commercial property measures and consultancy support already available, we now have a substantive package to help these firms and sole traders get through this phase and into recovery.”

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