The SME sector can play an even more important part in the recovery and growth of the New Zealand economy.

 

Picture: Paul Kane

With an election looming, every small businesses in New Zealand needs to lift their voices and be heard, asking each electoral party what they will be doing to help the SME sector.

Paul Kane, a partner in New Zealand accounting firm Grant Thornton, said that for a sector that plays such an important part in the New Zealand economy, it is plaqued by a defeaning quietness.

“Businesses employing five or fewer staff make up about 84% of New Zealand enterprises and businesses employing fewer than 50 staff make up nearly 99% of enterprises.

“Yet, when it comes to the Budget or elections, what do you hear from small business? Normally, very, very little. Minority groups of all shapes and size are out beating their drums, but small business seems to be paralysed by stereophonic silence.

“Most small business owners obviously do not know what other countries do for their small to medium enterprises otherwise they would be up in arms,” he said.

The United States, Canada, the United Kingdom, India and Germany, to name but a few, all offer assistance to the SME sector.

“One of the best examples and one that could be easily copied in New Zealand, is the United KingdomÕs Enterprise Finance Guarantee (EFG), which is a targeted measure intended to facilitate additional commercial lending to viable SMEs unable to obtain a normal commercial loan due to having insufficient or no security.

“EFG facilitates lending that would not otherwise be available by providing lenders with a partial guarantee,” he said.

Kane said that undercapitalisation is perhaps the biggest single reason for SMEs to fail in New Zealand.

“The number of new businesses that fall over in the first few years is disastrous. Just think of the loss that occurs every time this happens – losses by the owners of the business, and losses for subcontractors left high and dry up the river.

“In the United Kingdom, decisions on the use of EFG, eligibility, and lending terms in individual cases rest with the lender. There is no automatic entitlement to receive a guaranteed loan and nor is there any pre-qualification process for it.

“Any loan application will first be assessed via the lender’s own commercial criteria before any consideration of the EFG eligibility criteria.

“The loan facilities, which are varied, may be used under EFG and are usually repayable over terms between three months and 10 years. They may include

* new term loans (unsecured or partially secure)

* refinancing of existing term loans

* conversion of an existing overdraft into a term loan

* invoice finance guarantee (available for terms up to three years)

* overdraft guarantee (available for terms up to two years)

“A premium (equivalent to two per cent per annum) is payable to the relevant Government department, in addition to regular capital and interest payments to the lender, and any arrangement fee which they may charge. It is not an insurance premium.

“Lenders are allowed to require personal guarantee and/or security where available (except the borrower’s principal private residence) in line with their standard normal commercial lending practices.

“EFG is intended to support lending to viable businesses that can ultimately repay the loan in full. The government guarantee is a guarantee to the lender. Neither the guarantee nor the premium provides insurance for the borrower in the event of default. The borrower remains fully liable in the event of default.

“Hopefully, if the Government can be coerced into providing such a scheme as is available in the United Kingdom, then the SME sector can pay an even more important part in the recovery and growth of the New Zealand economy,” he said.