PONSONBY PROFESSIONALS
LOGAN GRANGER:
GOVERNMENT IRD - SMALL BUSINESS CASHFLOW LOAN SCHEME – TIME TO THINK ABOUT REPAYMENTS! Many businesses and self-employed individuals applied for loans under the Small Business Cashflow Loan Scheme in 2020 and 2021, no doubt in the hope and expectation that their trading would have returned to ‘normal’ by now, and perhaps not expecting us to still be struggling to manage Covid-19. For those that took these loans in the relatively early stages it will shortly be time to consider whether (and if it’s possible) to repay some or all of those loans, and to consider the potential cost of not repaying. The initial SBCL opened on 12 May 2020, with modifications announced in December 2020 including: · an extension to apply, out to 3 years, (ending 31 December 2023); · option to repay the loan in 24 months (instead of 12 months) without interest and; broadening the use of loan outside of core operating costs, to include capital expenditure. For those that drew down early, the 24 month interest free period will expire soon. Therefore we are advising clients of the impact interest charges will have on the loans, if they plan to defer repayment. The salient features relating to repayment and interest are set out below:
Logan Granger, Ponsonby Office
The loan term is up to five years, it is not necessary to make repayments in the first two years;
If you defer repayment and incur the interest, it is tax deductible.
· the loan is subject to interest at 3% per annum;
Borrowers may also want to review their cash flows to see if early repayment is possible. There is also an option of repaying the loan in full and then reapplying should you fit into the qualifying criteria (and therefore gaining an additional interest free period).
· no interest is charged if the loan is repaid in full within two years of drawdown; · after two years, regular payments of interest and principal are required – IRD will advise the amounts. If the loan is repaid after two years, 3% interest will apply for the entire length of loan (from day 1), i.e. for the first 2 years or retrospectively also; if there is a default on repayment, the interest rate charged is increased to the current IRD use of money interest rate of 7%. So to start thinking about whether you want to save on interest costs, multiply what you have borrowed by 6% (for the first two years at 3% a year) to see what repayment is likely to be if you carry the loan past the interest free expiry date. Example: $10,000 x 6% is $600, so repayment is $10,600 one day after two years and $10,000 one day prior.
Some of you may recall that the interest free period was originally set for 12 months and later extended to 24 months. IRD may consider another extension to this under the prevailing pandemic conditions, however only time will tell us what happens here. Although in the current interest rate environment, a 3% loan looks quite attractive, these decisions need to be made carefully. We are happy to assist anyone who wants to discuss what the best options may be for them. (LOGAN GRANGER) PN Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this article; always see your professional advisor before taking any action that you are unsure about.
JOHNSTON ASSOCIATES, 202 Ponsonby Road, T: 09 361 6701, www.jacal.co.nz
PONSONBY NEWS+ March 2022
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