Full Breakdown
Rising Defaults in New Zealand's COVID-19 Cashflow Loan Scheme
12/4/2025, 5:12:48 PM
Overview of the Cashflow Loan Scheme
The New Zealand government introduced the Small Business Cashflow Loan Scheme in May 2020 to assist businesses facing revenue losses due to the COVID-19 pandemic. The scheme provided $2.37 billion in unsecured loans to businesses with 50 or fewer full-time equivalent employees, with a maximum loan amount of $110,000. The loans were granted on a "high trust" basis, allowing companies to self-declare their financial struggles. The loans were initially interest-free for the first year, followed by a 3% annual interest rate, and were designed to be repaid over five years.
Current Default Statistics
As of October 21, 2023, defaults on the cashflow loan scheme have reached $447 million, with 19,297 loans entering default since March 1, 2023. Notably, only 124 of these defaults have been linked to insolvency. Despite the high number of defaults, the IRD (Inland Revenue Department) has indicated that these defaults have not significantly contributed to the rise in company liquidations, which have recently hit their highest monthly total since 2011.
Enforcement and Consequences
The IRD is actively pursuing overdue payments, charging a punitive interest rate of 13.88% on defaulted loans. Revenue Minister Simon Watts emphasized that the IRD will not hesitate to take legal action against borrowers who fail to repay their debts. The department has noted that overdue PAYE and GST payments are key triggers for enforcement actions. Additionally, many borrowers are in special repayment plans, with nearly half of them falling behind on their scheduled payments.
Government's Response and Future Actions
The government has extended the cashflow loan scheme multiple times, ultimately closing it at the end of 2023. In response to the growing number of defaults, the IRD has initiated marketing campaigns to encourage borrowers to engage with the department regarding repayment options. Watts stated that the most common reason for bankruptcy and liquidation proceedings is the lack of communication from borrowers. The government is also focused on reducing the debt owed to the IRD and has allocated additional funding for compliance and debt collection efforts.
Criticism and Opposition
Critics have raised concerns about the IRD's aggressive collection tactics, arguing that they may disproportionately affect small businesses still struggling to recover from the pandemic's economic impact. Some stakeholders believe that the government should consider more lenient repayment options or additional support for businesses facing ongoing financial difficulties.
Verbatim Quotes
- “Inland Revenue won’t retreat from making hard decisions to secure overdue payments and liquidations will continue to be the option of last resort to protect other businesses and individuals.” — Simon Watts, Revenue Minister
- “The longer insolvent trading continues, the fewer assets will be available to cover debts to employees and suppliers”.” — Simon Watts, Revenue Minister
Conclusion
The rising defaults in New Zealand's Small Business Cashflow Loan Scheme highlight the ongoing challenges faced by small businesses in the post-pandemic economy. As the IRD intensifies its collection efforts, the balance between enforcing repayment and supporting struggling businesses remains a critical issue for policymakers.
