The latest government budget in May announced an investment of $100 million in a new Business Growth Fund. This funding is designed to allow small and medium-sized businesses (SMB) to get much needed investment for growth, while also allowing business owners to keep control.
Why has this fund been launched?
SMB often experience difficulty obtaining business loans, restricting growth in the business. Banks can be reluctant to lend and frequently ask to secure the loan against the business owner’s assets such as the family home. This means mortgage debt is used to fund small business growth, which skews NZ household debt and business investment data.
If the business is able to secure another type of investment, investors usually require a significant stake in the business which can take the majority shareholding out of the hands of the original owner and sometimes out of New Zealand.
How will it work?
The Business Growth Fund (BGF) will partner with retail banks to lend money to New Zealand SMB. The bank will choose which business receives funding in exchange for the BGF taking a minority stake in the business. Stuart Nash, Minister for Small Business, said the BGF will provide support to SMB and will have “modest return expectations and no hard exit deadlines, allowing business owners to set their own growth targets.”
Is my business eligible?
Eligibility criteria has not yet been set up, nor have the bank partnerships, so it could be some time before the scheme details are known.
What if my business needs funding now?
If your business currently needs funding for business growth, there are a couple of options. One option is the Small Business Cashflow Scheme, for those SMEs struggling with a pandemic-associated loss of income. Other options are bank loans, private equity, and angel investors, as well as tax pooling for those big tax bills.
If you need advice on the best option for your business, call your accountant and ask then to talk you through the various options.
Thanks to our Key Regional Partners, Balance Chartered Accountants, for this update.