The issue of unpaid COVID-era business loans was a major talking point on The Mike Hosking Breakfast this morning. Hosking and his guest, ABC Business Sales Managing Director Chris Small, examined the financial burden that many businesses still face.
With nearly $1 billion in outstanding debt and thousands of businesses behind on payments, the conversation raised questions about government oversight, economic struggles, and whether the debt will ever be repaid.
A Billion Dollars Still Owed
Hosking highlighted the staggering amount still owed—$953 million—after 129,000 businesses took out loans totalling $2.4 billion during the pandemic. With the repayment deadline looming, many small businesses are struggling to meet their obligations – 10,000 are already behind on payments amounting to $161 million.
Adding to the financial pressure is the high default interest rate, which stands at nearly 11%. For businesses that have not recovered post-COVID, this additional burden is making repayment even more challenging.
No Security, No Consequences?
One of the most contentious aspects of the scheme was the lack of security required for the loans. Small pointed out that no personal guarantees (PGs) or general security agreements (GSAs) were attached, meaning business owners could default with little consequence.
“It was a real free hit for the business owner at the time,” Small noted, adding that many took the money knowing there was little chance of enforcement if they failed to repay.
Hosking criticised the Labour government for prioritising speed over financial responsibility, saying, “That’s the Labour Party for you. Let’s call it a round billion.” He questioned whether businesses that defaulted would be held accountable and if the government had any real plan to recover the money.
A Struggling Business Sector
Many businesses that relied on the loans to survive now find themselves unable to repay due to ongoing economic difficulties. Inflation, high operating costs, and slow economic recovery have left small business owners in a dire situation.
Listener messages to the show painted a grim picture. One builder, who had been in New Zealand for 15 years, took out a $40,000 loan, but after struggling for two years and accumulating penalties, shut down his business and left the country. Another listener, a sole trader, admitted they took out a $30,000 loan but has no way to repay it.
Hosking was blunt in his assessment of the government’s handling of the situation: “The whole idea was, look, have the money, get the money out the door … The idea being we’d bounce back with alacrity. But of course … we never were going to bounce back.”
Will the Government Write Off the Debt?
With no clear enforcement mechanism in place, both Hosking and Small questioned whether the government would ever recover the outstanding money. Small suggested that much of the debt may simply be ignored by business owners or written off in the long run.
“It’s a bit like student loans,” he explained. “They never really wipe them off. They just keep them going for perpetuity and keep saying it’s on the balance sheet. But the realistic situation is we’ll never see the money, or a fair bit of it anyway.”
Hosking echoed this scepticism, asking, “At what point do [the government] then write that off and go, ‘we’ll never see it again’?”