Small loans, big differences: Community Finance loans go interest free

Imagine this. You’re a parent with three children, and your partner has a serious health condition that requires fulltime care. You have a very tight budget, live very frugally, and understand exactly where every dollar goes.

You have an impeccable credit rating but don’t qualify for mainstream lending due to your low income level, and you lack the confidence to visit the bank and have a conversation about money.

You need a reliable vehicle and have been approved for a loan at a local car yard but understand that the cost of the loan is not the best use of what little money your family has to spend – approximately 30% interest rate plus fees.

Imagine this. You’re the parent of a child who is unexpectedly taken ill and requires ongoing medical attention in hospital. You’ve got some debt that you took on while working full time, but having to cut back on hours to take your child to and from the hospital means that these debts quickly become unsustainable. You default on the loan and as a result get a bad credit rating.

You have made arrangements to repay the debt and are committed to an on-going plan to pay it back over time, while still caring and providing for your sick child and family.  Banks or mainstream lenders won’t help because you don’t meet the credit criteria. It feels like an uphill battle with no end in sight.

These are the stories of real New Zealanders, and they are not out of the ordinary. Many people struggle day to day to make ends meet and are limited in where they can turn to get loans that don’t come with extortionately high interest rates.

Every day we deal with a huge range of customers and potential customers from all along the financial spectrum who apply for loans. There are people who, under our traditional banking model, we can’t help, and usually this is because they have minimal incomes or don’t meet credit criteria for other reasons.

We believe there’s a group of New Zealanders who fall into this category, who are actually very good at budgeting and are committed to paying back debt. The trouble is, because they don’t often meet the traditional banking criteria, they end up turning to loan sharks and pay day lenders, who charge crippling interest rates and fees.

We want to work with our Community Finance partners to offer them a low, or no interest loan that is affordable rather than have them take on debt that is unsustainable.

For the past eight months we’ve been working with the Ministry of Social Development, Good Shepherd and The Salvation Army on a pilot community finance initiative to provide low interest loans to people banks don’t normally lend to.

These are people who often live pay to pay, and are on low incomes. They do not qualify for the standard bank lending criteria, and because they’re living pay to pay they often don’t have any rainy day savings. This means that unexpected expenses can have a real impact on the basics in these peoples’ lives, like getting to work, and feeding and clothing the family.

The Community Finance partnership has just launched the second stage of the pilot – No Interest Loan Scheme (NILS). These no interest loans of up to $1000 for a maximum of 12 months are now available to people on low incomes through The Salvation Army’s centres in Manukau and Waitakere. Through this second offering we hope to better understand how the Community Finance initiative can work best – it’s a learning process for us and our partners!

Our hope is that the people we help become more financially confident and capable.

The families mentioned above were able to use Community Finance loans to help them out of tough situations.

The family with good credit but lacking confidence to speak to banks about loans were able to purchase a reliable vehicle. They were able to discuss their financial situation with a Salvation Army community worker in a comfortable environment and can now attend medical appointments and children’s activities. They’ve also been empowered by the money conversations and are likely to feel more confident talking to a mainstream bank in the future.

The family with bad credit were able to prove that they are addressing their debts and with a low interest loan were able to afford a small loan to help them with some car repairs (ensuring the constant medical visits were possible) without incurring high interest rates and fees.

Community Finance is not charity or a donation. It’s about helping people avoid paying unnecessary interest and educating them about how to avoid the debt trap.  Loans are to help build assets that can provide economic opportunities and improve quality of life for people.  Debt consolidation, rent and utility bills are not eligible.

Find out more information about the Community Finance initiative or to apply for a loan visit the Salvation Army’s website.

Mighty successful: Insider tips for online businesses from Mighty Ape

We speak with Dylan Bland of Mighty Ape, one of New Zealand’s local online success stories. Mighty Ape is a leading local e-tailer, selling computers and electronic games, books, movies, home and office products, toys, music and a range of other goods. Mighty Ape shared their thoughts on a wide range of online retailing issues and we present these below.

Many large international players have substantial resources and scale advantages. How does Mighty Ape successfully compete in this space?

We find that the majority of international e-commerce players have not focused on the New Zealand market and don’t have distribution centres located in New Zealand. Local e-commerce retailers including Mighty Ape have an advantage in this area. Stock warehoused locally can be delivered overnight anywhere in New Zealand. High service levels and fast, reliable delivery is an area where all local companies can effectively compete.

What have been the main market developments impacting on your business over the past 1-2 years?

We’ve seen New Zealanders become increasingly comfortable shopping online at various different online stores – and this increased comfort benefits the entire industry including Mighty Ape. We have also seen traditional bricks-and-mortar competitors respond to online shopping with mixed success. Some have competed head on and built websites of their own, while others have used their market power to lure customers in store with lower prices. Overall though, the market we operate in is quickly maturing and becoming more competitive.

What do you see as the key online retail trends for 2015?

Distribution networks will continue to improve with more products being made available to New Zealand consumers in a fast, reliable manner. Local retailers, both online and offline, will continue to put pressure on local suppliers and distributors to reduce the pricing arbitrage that exists in many categories. New Zealanders will continue to spend an increasing amount online and local players will work hard to keep as much of that spend within New Zealand as possible.

How does Mighty Ape use social media to engage new and existing customers?

Mighty Ape has always preferred to talk directly to customers rather than through a proxy like the media. For this reason we’ve invested early in Facebook, Instagram and Twitter – to ensure we are where our customers are. We don’t rely on the media or other 3rd parties to communicate important information about our business to our customers.

We’ve built our social audience by engaging with customers on topics that are relevant to their interests – and not strictly on a “selling” basis. For example, our Games Facebook page informs our customers about the latest gaming rumours, product announcements, competitions and giveaways – without the pressure of a hard sell. This daily interaction with our brand, in an environment that is comfortable, helps us to build an authentic relationship with our customers.

What are the critical success factors for retailers establishing an online presence?

Don’t bite off more than you can chew. Online shoppers in 2015 have higher expectations than they did 5 years ago. If you build a website and showcase your products – customers will expect to be able to buy them and have them delivered in a reasonable timeframe. This means all your products need to be well photographed. It means you need to have accurate stock data. It means having a reliable distribution system that can pick, pack and ship your orders quickly. These systems take time and resource to build – and if you’re successful – they’ll have to scale.

If you’re not ready for that – take a step back and use your website to solve easier problems ie. perhaps use your website as a showcase of what customers can expect to find in store. Showcase your store with beautiful photographs and entice customers to visit in person. Make your phone number and email address easily visible. Publish your opening hours. Whatever you do – do it well and build from there.

People get a lot of emails these days. How do you keep promotional emails effective?

Despite the growing number of digital channels available to online retailers email still remains the primary means to communicate and maintain relationships with customers. Ensuring email is relevant and interesting is more important than managing volume or frequency. Keeping email content relevant to their order history is key to maintaining effectiveness. This is challenging for online stores that offer a wide variety of products.

How essential is it for retailers with established physical stores to also have an online offering?

It depends – some products are more suited to selling online than others. Physical stores selling small, easily transportable products are more open to disruption than stores selling large, difficult to ship products. Price is also a factor. Customers have less comfort purchasing high value items they cannot see or touch. The important point for retailers is to understand their particular market and the options their customers have when making a purchasing decision. These insights are best achieved by being a shopper in that category yourself, and talking to your customers about their shopping habits.

Is there much room left in the market for new New Zealand online retailers to establish themselves?

It’s difficult to get scale in the New Zealand market but there are still opportunities for niche players to use online to reach more customers both locally and internationally. There will always be room for new players offering different products at better price points and with a higher level of service. Technology costs are lowering and distribution networks are becoming more efficient and more accessible – which opens the door for more retailers to embrace online and do it well.

Does Might Ape have an eye on the Australian market?

Australia is an important market for Mighty Ape. We have a dedicated website in Australia and dispatch orders from here in New Zealand. Australia is a big market with lots of opportunities for online businesses like Mighty Ape to offer a compelling service from here in New Zealand.

What sort of development do you expect in the areas of “click and collect” and e-tailers opening physical stores?

Online retailers who can offer a fast, efficient delivery service will have less need for “click and collect” than those who don’t. Click and collect is more important for retailers who struggle with multiple stores or distribution points, and who can’t make a consistent stock or delivery promise to customers. That being said – some customers will always prefer to pick up in person, whether it be to inspect a product, or perhaps their address is inaccessible by courier – so it’s an area that will no doubt grow as the market matures.

With competitors only a click away, how do you drive customer engagement and loyalty?

Mighty Ape drives engagement and loyalty with a strong, repeatable delivery promise. Our website provides real-time stock statuses for each product, and estimated delivery times based on the customer’s delivery address. We work very hard to ensure we meet those promises – and when we do – customers reward us with their loyalty and are more likely to purchase from us again in the future. Online can sometimes feel like the wild west – a lot can go wrong. Ensuring customers get what they want in the timeframe they were expecting to get it – you are most of the way there. This level of reliability and predictability is more valuable than any off-the-shelf loyalty programme or other incentive based programme.

Tax Time: Tips for managing the challenges involved

Tax is a major focus for New Zealand companies at this time of year. BNZ’s taxation team provide their top tips for managing the challenges involved.

April brings the beginning of the new tax year. Although most companies and business owners are relieved that March is over, and all the last-minute tax housekeeping matters for the last year have been dealt with, BNZ Head of Taxation, Campbell Rapley says it’s a good time to consider important tax matters for the year to come. He and his team have some key advice for managing what’s required.

  • Making payments and filing tax returns on time can save a business a lot of money. Inland Revenue’s use-of-money interest rates and penalties can quickly add up. The Inland Revenue website (ird.govt.nz) has a good example of a $1000 debt costing another $96 in penalties and interest if paid three months late – equating to an annual interest rate of 38.4 percent. Using bank credit lines or a tax-pooling intermediary (such as Tax Management New Zealand) can help reduce this cost if cash flow is tight. Alternatively, contacting Inland Revenue prior to the tax due date and agreeing to pay the tax due in installments can also reduce the penalties charged.
  • Provisional tax payments are an area which may seem straightforward but getting it wrong can cause cash flow issues. The final provisional tax payment for the tax year (for those with the standard March 31 balance date) is due on May 7. This is an opportunity to quickly recalculate your tax liability for the year. If your tax payable for the year looks higher than was anticipated when making the first two provisional tax payments, you could increase the payment due on May 7 to reduce any interest costs.
  • Keeping good records during the year makes life a lot easier. Remember that to be able to claim GST back on purchases, you must hold a valid tax invoice. The only exception is where the purchase of goods or services was for less than $50, but even in this situation you should keep a record of the date of the transaction, a description of the goods or services, and the cost and name of the supplier for both GST and income tax purposes. All tax records need to be kept for at least seven years.
  • Tax is a complicated business and mistakes can happen. If an error is uncovered after a return has been filed, you should contact Inland Revenue as soon as possible to discuss the correction of it. If you do this before Inland Revenue announce that they are going to undertake a tax audit of your business, some of the shortfall penalties that could otherwise be applied may be remitted. It may be that the error led to an overpayment of tax and you would be due a refund, but either way, advising of an error is evidence of you taking your tax responsibilities seriously and having a good review procedure in place. Now is a good time to put all those tax filing and payment dates in the diary and to do a stocktake of your document retention policy.

This publication has been provided for general information only and should not be relied upon. To the extent that any information or recommendations in this publication constitute tax or financial advice, they do not take into account any person’s particular financial situation or goals. Bank of New Zealand strongly recommends readers seek independent tax/legal/financial advice prior to acting in relation to any of the matters discussed in this publication.

Originally published in Kia Ora magazine.

First home help

Buying your first home is no easy task these days. The booming residential property market has seen house prices rising steadily, and Reserve Bank restrictions on loan-to-value ratios mean banks are able to lend to fewer buyers if they have a deposit of less than 20%. It’s tough out there, and as a result, we’re seeing more people joining forces to buy a home. Continue reading…

Getting on the property ladder with KiwiSaver

Saving for a first home is hard. According to 2015 Reserve Bank inflation figures, house prices (especially in Auckland and Christchurch) are rising faster than wages. For many saving for a deposit, it can feel like the finish line never gets any closer. All is not lost, however – if you’re a member of a KiwiSaver scheme, you might actually be eligible to withdraw almost all of your KiwiSaver savings. In fact, as of April 1 2015, the Government has opened the first home buyer benefits up even further, making it just that little bit easier for new buyers to get on the property ladder.

Who is eligible?

First things first, you must have been a  member of a KiwiSaver scheme for three or more years in order to apply for a first home withdrawal. Not only that, it needs to be your first home and must be for you to live in — if you’re intending to rent the house out, then the KiwiSaver first home withdrawal isn’t for you.

How much can I withdraw?

Happily, as of April 1 2015, you can withdraw more than previously. Up until then, first home buyers were only able to withdraw their own contributions, any returns on their investment and any employer contributions — the Government contributions (member tax credits and $1,000 kick start) were out of bounds. As of right now, however, you are able to withdraw all the Government member tax credit contributions, too. So that means if you qualify, you can now withdraw everything in your KiwiSaver account except for the $1,000 kick start — a welcome change for first home buyers.

KiwiSaver HomeStart grant

In addition to accessing your KiwiSaver savings, you might also qualify for a grant to help you into your first home. The Government has replaced the old KiwiSaver first home deposit subsidy with a new KiwiSaver HomeStart grant. It’s a little more complex than it used to be when it comes to figuring out how much money you might receive, but it is also more generous.

If you’re purchasing an existing home (as opposed to building or buying a brand new one), the grant is between $3,000 and up to $5,000 — depending on how long you’ve been a member of and contributing to a KiwiSaver scheme ($1,000 per year of membership and contribution).

If you’re purchasing a new home, a property off the plans or land to build a new home on, the grant is doubled to between $6,000 and $10,000 ($2,000 per year of membership and contribution).

These amounts are per person, so if there are two of you and you both meet all the criteria, you can, in effect, double the maximum amounts.

House price caps

Because the Government’s aim with this scheme is to help first home buyers into home ownership, they figure you won’t be buying million dollar houses, so they’ve put maximum house price caps in place. These caps vary depending on where you are in the country, and, as part of the recent changes, have been increased slightly.

In Auckland, the maximum purchase price is $550,000. In Hamilton, Tauranga, the Western Bay of Plenty, Kapiti, Porirua, Hutt City, Upper Hutt, Wellington, Tasman, Nelson, Christchurch, Selwyn, Waimakariri and Queenstown, the maximum purchase price is $450,000. For everywhere else, the maximum purchase price is $350,000.

More rules

To get the grant, there are a few boxes to tick. You must be 18 or over, have been a member of and contributing to a KiwiSaver scheme for at least three years, have an annual household income less than $80,000 for one person, or $120,000 for two or more people. You also need a deposit of at least 10%, which a home purchase withdrawal from a KiwiSaver account counts towards, and plan to live in the house for at least six months. Phew! Still, it’s a great help if you qualify.

How do I get it?

When it comes to the first home withdrawal, you should talk to your KiwiSaver provider as they will handle the application process and the release of the funds.

The HomeStart grant, on the other hand, is run by Housing New Zealand, so if you think you’re eligible, get in touch with them to begin the application process.

One last chance

Last of all, even if you’ve previously owned a home it may be possible that you’re still able to access your KiwiSaver savings and qualify for the KiwiSaver HomeStart grant. If you no longer own a home and can prove that you’re in the same financial position as a first home buyer, you might just be in luck. To find out if you are, you should again contact Housing New Zealand for help.

The BNZ Kiwsaver Scheme has a First Home Buyer Fund designed for people planning to buy their first home in the next three to five years and want to use their Kiwisaver to help save for it. Find out more.

This article is solely for information purposes and is not personalised financial advice. We recommend that you seek advice specific to your circumstances and contact Housing New Zealand for full details of the KiwiSaver HomeStart grant. No representation or warranty, express or implied, is made or provided as to the accuracy, reliability or completeness of any statement in this article. None of BNZ Investment Services Limited, Bank of New Zealand or any other person accept any liability for any loss or damage arising out of the use of, or reliance on, any information in this article.