How should you prepare your loan application documents? How can you get help from a banking specialist? A comprehensive guide to bank policies in exceptional times

The nationwide lockdown has entered its fourth week. While the threat of viral transmission appears to be easing, the economic downturn caused by the pandemic is becoming more severe. The New Zealand Government has introduced a series of support measures to help businesses and individuals through these economic difficulties. As the channels through which money flows, banks have a major role in providing direct assistance. Below, Bank of New Zealand (BNZ) Head of Asia Franky Wang uses BNZ as an example to offer practical advice for customers seeking help from their bank.

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Support for small and medium-sized businesses goes beyond repayment deferrals

Small and medium-sized businesses can be described as the backbone of New Zealand’s economy, with more than 50 nationwide. Helping them stay in business while awaiting economic recovery matters enormously to business owners, employees and the country as a whole.

New Zealand has around 370,000 self-employed business owners, who often release equity by mortgaging their own homes or investment properties. Home loans are therefore particularly important to them, so let us begin with mortgage policies. New Zealand’s major banks and the Government have jointly introduced new mortgage repayment arrangements, with three options:

Defer mortgage repayments for six months;
Reduce mortgage repayments for a specified period;
Temporarily make interest-only mortgage payments.

It is particularly important to remember that mortgage repayment deferrals, which have attracted the most attention, are actually a relatively costly financial option. If you have sufficient funds, consider reducing repayments rather than deferring them entirely wherever possible. Discuss these options with your banking specialist before making a final decision.

For many small and medium-sized businesses, short-term bank credit, such as an overdraft for 90 to 180 days, can also be an effective way to address an urgent cash-flow crisis. BNZ, for example, offers the following options to help customers through this difficult period:

Reviewing and extending the terms of supply chain finance products;
Reducing interest rates on current account overdrafts;
Asset finance covering one hundred per cent of the asset’s value;
QuickBiz fast online loans of up to $100,000, available around the clock;
Principal repayment holidays;
Loan repayment deferrals;
Extensions to term loan periods;
Short-term loans;
Hardship loans;
Business credit card services;
Approval of interest-only loans on a case-by-case basis.

Contact your banking specialist to discuss which option best suits your circumstances. This is about both the amount of credit available to you and helping you make sound decisions for yourself and your business.

How to contact your bank efficiently

During lockdown, BNZ has provided a comprehensive range of digital solutions to ensure customers can contact the bank quickly when needed:

Updates are promptly published on the bank’s official website for customers to consult;
Applications, including those for mortgage repayment deferrals, can be found on the relevant pages of the official website, where information can be entered directly into the system;
The bank’s 0800 contact centre is fully operational and can process thousands of applications each day;
The bank has also launched an official WeChat account for the convenience of Chinese customers.

How to apply for the Business Finance Guarantee Scheme for small and medium-sized businesses

The New Zealand Government has partnered with nine major banks to launch the Business Finance Guarantee Scheme BFS(Business Finance Guarantee), under which the Government takes on 80% of the credit risk and banks take on 20%. Business customers with annual turnover between NZ$250,000 and NZ$80,000,000 can apply for loans of up to NZ$500,000 if they meet the eligibility requirements. Loans have a maximum term of three years, with floating interest rates as low as 4.00% a year.

So how can you establish whether you qualify and complete the application efficiently to obtain funding as quickly as possible? Using BNZ as an example, preparing the following information in advance is essential:

How has COVID-19 affected your business, particularly its cash flow? For example, has your revenue fallen by 30%?
Keep your analysis of the business’s fixed and variable costs up to date. Review operating costs: for example, cafés, restaurants and motels or hotels may have no customers for some time, so how will their variable costs change? Expenses such as workplace rent are fixed costs.
The bank wants to understand your sales, supply chain and operations, how many people you employ, and how many employees will return to work once the pandemic is over.
Does your business operate in an industry the Government has said will be excluded from the scheme, such as agriculture, commercial building investment or property development?
Do you have a comprehensive plan for navigating these economic difficulties?

In short, the more information you provide to the bank, and the more promptly you update it, the greater your chances of a successful application. It is also helpful to explain what a GSA, or General Security Agreement, means.

When applying for this BFS funding, the bank will require you to sign a GSA, a Personal/Third Party Guarantee, or another agreement providing security. These agreements are a precaution: if the business cannot be saved, the bank can recover some of the money it has lent by selling secured assets. They also help ensure that a company can obtain this particular loan from only one bank.

Personal customers should also seek professional support from their bank

In ordinary times, most people may see a bank simply as an institution where they can earn interest on savings or obtain a loan. But in these exceptional times, when many people are worried about their income, banks can do much more.

Unlike business customers, personal customers manage their finances in a wide range of ways: some have savings, some use credit cards, and others have personal loans. This diversity makes it particularly important for personal customers to plan ahead and speak to their banking specialist early to obtain the right support. We also suggest they speak with their employers, visit government websites to understand their rights, or contact a lawyer or union so they can make informed decisions promptly. If needed, the bank can also help coordinate matters.

A more cautious response is needed than during the subprime mortgage crisis of ’08

The current economic difficulties readily bring to mind the subprime mortgage crisis of 2008, but the two are very different. This is a global pandemic affecting every economy, with none spared. Its ultimate course depends not only on national economic policies and global commercial and financial markets, but also on health and medical conditions worldwide. Recovery will require coordinated, carefully considered efforts on many fronts. We therefore need to prepare as far as possible in line with our circumstances and local conditions. Individuals need to make choices and trade-offs at the right time; businesses need to seek all available help to make sound decisions and even prepare more than one response plan.

Finally, I hope we can all look out for one another. As we work to help ourselves, let us show a little more understanding, gratitude and warmth towards the people and situations around us. Let us maintain these emotional bonds through care and await the arrival of spring together.

Author: Franky Wang, Head of Asia, Bank of New Zealand