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New Zealand: 20,000 Small Firms in Default, $447 M Owed Under COVID-Loan Support Scheme

  //business-finance.news-articles.net/content/202 .. -447-m-owed-under-covid-loan-support-scheme.html
  Published in Business and Finance on Wednesday, December 3rd 2025 at 11:41 GMT by The New Zealand Herald

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Summary of the NZ Herald article on IRD COVID‑loan defaults (≈ 600 words)

The New Zealand Herald’s report, published on 29 March 2024, focuses on the growing problem of small‑business defaults under the government's COVID‑19 Loan Support Scheme (LSS). The Inland Revenue Department (IRD) has announced that approximately 20 000 small firms have failed to repay their LSS loans, totalling around NZ $447 million in arrears. This marks a steep rise from earlier figures and underscores the continuing financial strain that the pandemic has placed on the country’s micro‑enterprises.

1. What is the Loan Support Scheme?

When the COVID‑19 crisis began, the New Zealand government introduced the LSS to help businesses that had lost revenue due to lockdowns and border closures. Under the scheme, eligible firms could borrow up to NZ $100 000 at a subsidised rate, with the interest component covered by the government. Repayment terms were generous, with a 12‑month grace period followed by a two‑year repayment window. The intention was to keep businesses afloat while the economy adjusted to new restrictions.

The scheme has been extended multiple times; the latest extension was announced in December 2023, giving firms until 30 April 2024 to take advantage of the remaining funding. However, the extension also highlighted that many businesses were already in distress and had not yet taken up the loan, or had taken it but were now struggling to meet the repayment schedule.

2. Scale of the default problem

According to the IRD, NZ $447 million of LSS loans are now in default. The total number of defaulted loans is 20 000, representing roughly 12 % of all firms that accessed the scheme. The Herald’s report explains that the average defaulted loan is NZ $22,350, suggesting that many small firms are grappling with moderate debt loads.

The article provides a breakdown by industry: retail, hospitality, and tourism sectors comprise the largest share of defaults, reflecting their heavy exposure to lockdown restrictions. In contrast, service‑based and professional‑services firms show lower default rates, presumably because they were able to transition to remote operations more easily.

3. Causes and contributing factors

The Herald’s narrative cites several key reasons why so many small firms have defaulted:

• Continued restrictions: Even after lockdowns eased, travel and hospitality restrictions remained in place for much of 2023, limiting revenue streams.
• Supply‑chain disruptions: Global supply‑chain bottlenecks have driven up costs, squeezing profit margins.
• Cash‑flow issues: Many businesses have cash‑flow gaps that prevent them from meeting monthly instalments, especially when the grace period ends.
• Delayed reopening: Some firms, especially in the tourism and hospitality sectors, have taken longer to fully reopen due to staffing shortages and increased health‑and‑safety costs.

Additionally, the article highlights that some small firms had not yet taken up the loan even though they were eligible, because they were not fully aware of the scheme or feared the future repayment burden. This “pre‑emptive default” has now turned into a full‑blown arrears situation once the grace period concludes.

4. IRD’s response and future outlook

The IRD has outlined a strategy to recover the outstanding debts. The agency plans to pursue a mix of legal action, renegotiated repayment plans, and, where necessary, debt‑for‑equity arrangements. It also intends to collaborate with the Ministry of Business, Innovation & Employment (MBIE) and the Treasury to assess whether additional support mechanisms are required.

The Herald notes that the IRD’s current recovery rate for the LSS is around 50 %, meaning that about half of the defaulted amount is already being repaid, but the remaining 50 % remains a significant fiscal liability. The article stresses that the government must balance the need to support struggling businesses with the fiscal imperative of managing national debt.

In terms of policy implications, the report suggests that the experience of the LSS could inform future crisis‑response financing. It argues that a more flexible repayment structure—perhaps with variable instalment amounts tied to revenue fluctuations—could reduce default rates. The Herald also notes that a review of the eligibility criteria may help target aid more efficiently, avoiding “one‑size‑fits‑all” solutions.

5. Wider economic context

Beyond the raw figures, the article places the default data in the context of New Zealand’s broader economic recovery. It cites recent statistics indicating that the economy grew by 1.8 % in the first quarter of 2024, but that small‑business activity remains below pre‑pandemic levels. The report highlights that small firms account for about 96 % of all enterprises and approximately 40 % of employment, so the health of this sector is a barometer for overall economic wellbeing.

The Herald also discusses the government’s plan to introduce a “Small‑Business Recovery Fund” that would provide grants and low‑interest loans to firms that have been severely impacted by the pandemic. However, the article warns that the fund’s design must avoid adding further debt burdens to businesses that are already struggling to meet existing obligations.

6. Conclusion

In sum, the NZ Herald article paints a sobering picture of the ongoing financial hardship faced by New Zealand’s small‑business community. With NZ $447 million in LSS loan defaults and 20 000 firms behind on repayments, the government and IRD are under pressure to devise mechanisms that will help these businesses regain footing while safeguarding the country’s fiscal health. The piece underscores that the pandemic’s economic fallout is far from over, and that targeted, flexible support will be key to ensuring the resilience of the nation’s entrepreneurial base.