Why stimulating small business lending benefits our economy

Ben Thompson highlights the importance of the Small Business Cashflow (Loan) Scheme for assisting businesses, and how technology investments are the key to long-term growth.

As nations across the globe see Covid-19 cases continue to rise, New Zealand’s strict and decisive lockdowns have positioned its pandemic response as world-leading.
However, the social and economic blackouts have not been without sacrifice.
Small and medium-sized enterprises (SMEs) make up 97 percent of firms[1] in New Zealand. That equates to 530,000 businesses. Over the course of two lockdowns these SMEs were forced to hibernate, leading to long-term damage and in some cases, permanent closure.
In November, the government announced that it would be extending the Small Business Cashflow (Loan) Scheme (SBLS)[2] until the end of 2023. The scheme gives eligible small businesses access to:
•    A base loan of $10,000, plus $1,800 per full-time employee across a five year period, capped at $100,000.
•    Interest-free money for the first two years, followed by a three percent interest rate for the remaining three years.

Since the SBLS was announced in May 2020, nearly 100,000 businesses[3] have accessed loans, totalling $1.6 billion in lending. This proves there is an urgent demand for capital injection within New Zealand’s economy, and that the government was right to extend the scheme for a further three years.
SMEs will play a significant role in New Zealand’s recovery, and stimulating lending is a fundamental support to see these firms get back on their feet. The slow but steady rise in business confidence[4] signals that the loans are already having an impact.
Now, we must keep that momentum going.

Cashflow is critical
Without the SBLS, many small business owners would not be able to access the funds they so desperately need to see them through the wake of Covid-19’s devastation.
Big banks have strict lending criteria meaning SMEs must guarantee a loan against a major asset, such as their home, and the stakes are simply too high for this to be a viable or sustainable option.
The crux of small business lending is cashflow. Unlike large enterprises, SMEs typically do not have excess revenue pools to fall back on in the event of a crisis, meaning a prolonged trading pause can be crippling. Without money coming in, bills, rent, wages on top of living expenses become unmanageable.
In the Prosper Small Business Resilience Survey, 54 percent of SMEs said they had cashflow issues as a result of Covid-19, and more than 87 percent said that compared to the previous financial year, they expect profit to decrease within the next 12 months.
While there is no crystal ball into the future, we are well placed for a strong economic recovery. Market research leaders are predicting that by 2022, New Zealand’s Gross Domestic Product (GDP) will grow 5.7 percent. That means consumer spending will accelerate, trading will pick up, and SMEs can start generating income again. 
For now though, cash stimulus is the bridge to that future, ensuring that within a few years, we will still have a healthy small businesses economy to support New Zealand’s broader recovery.

Investing in small business’s future
First and foremost, the SBLS loan recipients must ensure all core expenses that ‘keep the lights on’ are accounted for. However, the scheme extension now includes an expanded set of criteria for what the loan can be used for, namely investments in technology.
With businesses scarred by physical closures, those that can have transitioned some, if not all, operations online. While there will always be a place for brick-and-mortar merchants, Covid-19 has accelerated a far-reaching digital shift among SMEs – something that has been a long time coming. 
Encouraging spend in digital investments puts small businesses in great stead for the future. Having a diversified online revenue stream to supplement, or eventually take over, physical processes gives SMEs a greater chance of surviving and thriving in a technology-led post-Covid recovery.
Tech investments are a small business’s lifeline to long-term, sustainable growth. Moreover, the rise in digital spending is set to boost other parts of the economy – a win-win for all.
Low-risk, small business lending is precisely what New Zealand needs right now. Not only will SBLS help businesses survive Covid-19 in the short-term – it will leave a lasting impression on the way SMEs safeguard themselves for the future.    

Ben Thompson is CEO and co-founder of people management platform, Employment Hero. https://employmenthero.com He is also a qualified solicitor with a passion for business, a self-confessed geek, and thrives on creating innovative solutions that combine employment and technology to help employers.

[1] https://www.mbie.govt.nz/business-and-employment/business/support-for-business/small-business/
[2]  https://www.ird.govt.nz/covid-19/business-and-organisations/small-business-cash-flow-loan
[3]  https://www2.deloitte.com/nz/en/pages/risk/articles/small-business-cashflow-loan-scheme.html
[4]  https://www.anz.co.nz/content/dam/anzconz/documents/economics-and-market-research/2020/ANZ-BusinessOutlook-20201130.pdf