Cyclone: Govt pledges $240m towards loan guarantee scheme

The Government will put $240 million towards a loan guarantee scheme to assist businesses affected by this year’s cyclone and flooding in the North Island.

It has also announced a government inquiry to review the response to the North Island severe weather events.

The Government will underwrite bank lending and offer cheaper finance options, aimed at ensuring the long-term survival of critical regional industries, including growers and farmers.

Finance Minister Grant Robertson said businesses had been “hard hit” by the North Island weather events this year and that continued to be felt, particularly in horticulture.

“This package was developed with primary producers and will provide relief to key growers, farmers and businesses and help their regions continue to recover.”

The announcement also included a concessionary loan and equity scheme aimed at helping businesses re-engage with banks and work towards becoming cashflow positive again, he said.

“The North Island Weather Events (NIWE) Loan Guarantee Scheme will provide relief to affected firms seeking commercial lending.

“This scheme leverages the Crown’s financial strength by carrying 80 percent of the credit risk on covered loans, allowing banks to reduce interest rates and offer more flexible terms.

“The Government’s underwrite will support loans of up to five years agreed by businesses and their banks of up to $10 million from the scheme, including refinancing of existing loans.

“For example, a reduction in interest rates from 0.3 percent to 1.5 percent would be equivalent of $9000 to $45,000 in interest cost savings per year for the average supported firm, based on borrowings of $3 million.

“Over the five years the scheme is in place, these savings could total between $45,000 and $225,000 for a firm with an average amount of debt, providing meaningful relief.”

Robertson said further details would be announced in the coming weeks, and it was hoped the scheme would be up and running by the end of July - allowing time for banks to get systems in place.

The package also includes the NIWE Primary Producer Finance Scheme to provide access to capital for affected growers and farmers unable to access lending without further support.

The funding will be targeted towards severely affected businesses that have a reasonable likelihood of being commercially viable, but cannot currently access commercial finance.

Robertson said the Government couldn’t pay the full cost of the recovery and rebuild, and the package had been “carefully designed to ensure banks continue to play an integral role in the recovery”.

Emergency Management Minister Kieran McAnulty said many businesses severely affected by the weather events were likely to be commercially viable with “the right support”.

“This scheme enables the Government to provide concessionary loans and equity finance for land-based primary sector producers up to $4 million per business from a pool of up to $240 million set aside in total.

“It will provide a way for businesses to fully re-engage with lenders at a later date, once we have helped them get back on their feet. This will in turn contribute towards their recovery, and provide better regional, social and economic outcomes in cyclone-affected regions.”

Horticulture New Zealand chief executive Nadine Tunley said the package is the result of cross sector involvement.

She hoped the package would provide “vital help” to all affected businesses, including horticulture businesses.

“Many businesses are still grappling with funding repairs and rebuild efforts. We hope this package and announcement will help relieve the pressure and stress people are facing, so they can get on with the recovery and provide jobs for people in regional New Zealand.”

LeaderBrand’s chief executive Richard Burke said businesses like his provided hundreds of thousands of jobs for people in the regions.

He said the support package was a “win-win”.

Cabinet had also decided to establish a Government Inquiry under the Inquiries Act 2013 to review the response to the North Island severe weather events.

It will be led by former Governor-General Sir Jerry Mateparae.

McAnulty said it was normal practice for local Civil Defence to review the response to a severe weather event, regardless of size.

“Given the significance of Hale, Auckland Floods and Gabrielle, it is appropriate that a government inquiry is set up.

“Affected communities, including rural, Māori and Pacific communities, have raised concerns about communication and support during the response.

“With climate change we are seeing more frequent and complex weather events across New Zealand, and because people’s lives and livelihoods are at stake, it is critically important that our emergency management system is fit for purpose and ready to respond to future emergency events. There are lessons to be learned. It is important we incorporate these into our systems so we can continue to improve.”