‘Exhausted’: $5.3b in business loans tied to house, owners drowning in debt

About $2.2 billion of business loans secured by residential mortgages is due to be re-fixed within the next year with concerns rife for owners crippled by debt.

The news comes as rising wages, inflation, increased
costs, a devalued New Zealand dollar and evaporated customer confidence are expected to continue into next year.

Industry leaders told NZME they were also concerned about people’s mental health after a “tough and exhausting three years for everyone”.

The latest figures from the Reserve Bank of New Zealand show about $5.3b of business loans were secured by residential property mortgages – of that $1.47b was on floating rates, $3.9b on fixed rates and about $2.2b was due to re-fix within the next year.

It comes amid rising interest rates.

Inflation hikes like trying to ‘fight a fire with petrol’

Tauranga Business Chamber chief executive Matt Cowley said fighting inflation by increasing wages was like trying to “fight a fire with petrol”.

“Businesses have been passing on the costs by increasing their sale prices. But the economy is starting to feel the pinch of rising mortgage costs, which means customers are buying less, or they are delaying major purchases.”

He said it had been a “tough and exhausting three years for everyone”.

“Many small business owners have financed their family home to invest in their business. With home values decreasing, banks are starting to ask tough questions about business cash flow forecasts.

“There are nervous business owners worried about what 2023 may look like as the global economy cools down, increasing geopolitical uncertainty, and how New Zealand’s central government elections may impact the viability of their business.”

The shortage of Kiwis applying for local jobs meant employers had also increased salary offerings to recruit candidates, or counter-offered to retain existing staff.

“The staff shortage is meaning 14 to 16-year-olds are getting offered incredible casual hourly rates to do basic jobs as the employers are desperate, such as running plates at restaurants as we head into our busy tourism season.”

Rents were going up alongside fuel and energy prices and many overseas supplies had increased because the NZ dollar had devalued.

Cowley said mental well-being was always a worry “especially as Kiwis generally find it difficult to reach out for help”.

‘It is just a little bit by little bit but it all adds up’

Tauranga’s Sand Bakery and Café owner Jack Lao said their rent had gone up and everyday suppliers were increasing their prices.

“It is just a little bit by little bit but it all adds up. There is nothing I can do about it. Everybody is in the same boat.”

He was working seven days with his wife. They did split shifts to work around their two children.

Lao said it was hard to get staff but he was grateful he had a loyal team. ”They have stayed with me and are loyal.”

Average wage in retail $26.65 an hour

Retail NZ chief executive Greg Harford said rising wages had a significant impact on businesses and the average wage in retail was $26.65 an hour.

“As the minimum wage increases, it puts significant pressure on all other wage rates as businesses try to maintain relativities between experienced and junior staff.”

Business was very difficult for retailers at the moment.

“Customer confidence has evaporated and we are spending less, on average. At the same time, costs are escalating rapidly. Wages, freight, rents and utilities are all headed north, which translates into more costs that get passed on to customers.”

The mental well-being of business owners and managers was “a significant concern at present,” Harford said.

“There are lots of business owners who have worked valiantly to keep their businesses afloat during Covid and who have taken on substantial extra debt to do so. This makes their businesses less sustainable – and that’s bad news in a near-recessionary environment.”

Business owners typically put everything into their business and would have their homes mortgaged as security.

“For SME retailers, the success or failure of their business is a deeply personal matter – affecting every facet of their lives. There is significant stress in the business community at present, and Retail NZ encourages anyone needing help to reach out for support.”

Restaurant Association of NZ chief executive Marisa Bidois said the past few years had been some of the toughest on record for its sector which lost more than $1b in sales over the year during the height of Covid.

Last year sales declined 9.3 per cent from 2020.

“Costs in almost every area of running a business have increased, with food cost rises in 2022 having a major impact on our sector. Rising wage costs ultimately have a knock-on effect on menu pricing and many of our members are currently working through menu price increases within their businesses.”

She said wellness was a focus and it was important business owners and staff seek help when they were stressed and overwhelmed.

It had a number of partner programmes in place to “help owners navigate their way through these challenges so they do not feel alone”.

“Our industry’s operators have been called on to display acts of resilience time and time again and almost three years into the pandemic now many are exhausted, physically and mentally. Health and wellbeing need to be a national focus to help us as we move into the next phase of dealing with the pandemic.”

Many businesses were managing high levels of debt due to the impacts of the past two years so the rising wages put more strain on businesses during this period of recovery, she said.

“When new employees entering the business have an expectation to start on higher wages, this has a flow-on effect and also increases wages across all levels within an organisation.”

‘People are under stress financially and mentally’

“Extremely challenging, frustrating and stressful.” That is how Spring Kitchen and Rise Pies owner Simon McCaul describes the current business climate.

He said the business had been affected by staff shortages and rising food costs that had gone through the roof with increases of 50 to 60 per cent on some staples.

A 5kg bag of grated cheese had gone from $32 to $70 odd dollars which “just cripples a small business”. A bag of flour that was $18 jumped from $30 to $34.

“That is the sort of price increases you are looking at, a good 50 to 60 per cent and some stuff is even more than that, it’s 100 per cent, in space of a year. Suppliers are saying prices have gone up due to Covid and shipping shortages but one thing we can’t understand in the industry is why dairy has gone up.”

McCaul said it was filling staff gaps with everyone doing extra hours that took a toll.

“People are under stress financially and mentally and those who own the business are the ones who have to hold it together financially. We’ve had to take on more debt to support them and support ourselves which adds to mental stress and fatigue.”

Many small businesses financed off family home

Employers and Manufacturers Association head of advocacy and strategy Alan McDonald said small to medium businesses were doing it “really, really hard”.

He agreed many small businesses were financed off the family home “so that obviously creates pressure”.

“They don’t have the same resilience or resources to absorb some of these things… It’s hard to keep passing on those costs whether it’s labour or providing goods and services.”

McDonald said the scenario was a “perfect storm” as international inflation and supply chain pressure also came into play.

Last week the Government extended its health and wellness support package to small businesses across New Zealand until June 2024.

The First Steps platform, which offers resources and support to help businesses develop mental health and well-being, has had more than 70,000 Auckland-based users, more than 75,000 resources downloaded and more than 1300 emergency helpline calls attended since it launched last year.

McDonald said it helped the business chamber in Auckland put together the programme and it was a great initiative he was pleased had been rolled out nationwide.

BusinessNZ chief executive Kirk Hope said businesses across the country were suffering and rising interest rates would increase capital costs for those who had leveraged a property.

The latest Performance of Services Index and the Performance of Manufacturing Index showed it was slowly rising but Hope said “it’s still really weak” and below where it was a couple of months ago.

He said overseas influences at play included a strong US dollar and fewer manufactured goods coming out of Europe and China which still had a zero Covid policy.

“So there is going to be lower numbers of goods basically so that feeds into inflation. If consumers need a product manufactured offshore, you have no choice around your consumption of that so the price is likely to stay high.”

Another factor playing at the moment was another 50 per cent of residential mortgages were re-pricing between July and December.

He estimated that could remove $10b from the economy as people adjusted to the higher rates and spent less.

‘We are all exhausted’

Reg Hennessy, the owner of Hennessy’s Irish Bar and the president of the Bay of Plenty Hospitality Association, said he was working behind the bar himself due to staff sickness and shortages.

“We are all exhausted.”

He said just last week his head chef pointed out cooking oil had gone up from $35 to more than $80. And while consumers can shop around for specials, butter from a wholesale supplier was $9.20 for 500g, he said.

Cost escalation hits homeowners and builders

Master Builders Association chairman David Kelly said it was fighting for talent and its latest State of the Sector survey revealed cost escalation was the most challenging issue facing the sector.

“While the gib shortages are now improving, there are still increased distribution costs which are global issues. These are likely to continue for some time yet.”

The issues were having a major impact on the sector and on homeowners.

“Those surveyed stated that additional costs and project delays are the consequence of these pressures and, in turn, these are causing a rise in the number of customer complaints and disputes. We are working with our members to support them through these issues.”

Kelly said it was more important than ever for building companies to manage their books and the work they took on closely.

‘You can’t soften the blow’

Petes Mowing owner Pete Blackburn said he had been in the industry for three decades and the past three years had been really hard.

“You tend to hold things in a lot… and you try to absorb as many of the costs as you can but at the end of the day you can’t do that. The person at the other end has got to pay, you can’t soften the blow.”

He said if people were slow to pay it had a concertina effect.

“If you are at the bottom of the list you run into arrears.”

Blackburn was semi-retired and said the price of fuel was more expensive and the price of spare parts had been hiked up.

Business is big bucks for banks

A BNZ spokeswoman said business lending made up around 40 per cent of its book.

It was focused on supporting business customers to navigate uncertainty so they could continue to invest in and grow their operations, create jobs and thrive.

Each loan was assessed on a case-by-case basis, she said.

“We work with our customers to assess their key metrics, such as cash flow, to get a better understanding of their business operations and growth ambitions, and we’ll work with customers on security arrangements to suit their needs.”

She said anyone concerned about their financial situation should contact BNZ – the earlier the better.

Kiwibank chief business banking customer officer Elliot Smith said a small number of its lending in the business segment was residentially secured.

During challenging times it was all about having an open dialogue.

“Communicating early with your advisors and your bank to understand what the future may look like is important. Address your concerns and be open about the stress points.”

It had a clear hardship process in place.

An ANZ spokeswoman said ”we bank more businesses than any other bank and continue to be the largest bank in the agri sector in terms of share”.

She said while Covid had been tough on many businesses and their owners, its seen real strength and resilience from the sector.

Its data shows a strong lift in new business start-up activity with nearly 13,000 signing up in the year to July that was now above pre-Covid levels.

”We know the current environment remains challenging for some and we will continue to monitor the impact of emerging economic challenges.”

Government handouts, help ups and support

Data from the Inland Revenue Department shows nationally 113,031 entities received $1.3b in Covid support. In Tauranga 5572 received a share of $60 million and in Rotorua, 2424 businesses received a share of $28.8m.

A Ministry of Business, Innovation and Employment spokesperson said there were 551,634 small businesses in New Zealand last year including 36,108 in the Bay of Plenty compared to 548,442 and 35,730 in 2020.

There were 691,500 registered companies in New Zealand last year. On October 18 this year there were 712,257 registered companies including 69,876 in the Bay of Plenty.

The ministry was also involved in various mental health and well-being initiatives including First Steps, which was a part of Activate Tāmaki Makaurau – a $60m support package for Auckland businesses. It was also involved with the $50m Covid-19 Business Advisory Fund the Strategic Tourism Assets Protection Programme and the Events Transition Support Payment.

‘Only so much you can suck up’

Electrify NZ Tauranga and Whakatāne owner Dan Wallace said there was “only so much you can suck up” and external factors were weighing on the internal running of a business.

He felt for other business owners but said he was doing okay, primarily because of the products he sold.

“We try to look at the bigger picture. I would agree everybody is going through a harder time than a few years ago and every home is feeling that to a different degree but from a historical point of view, there are natural highs and lows.

“I think it just comes down to trimming the fat a bit and keeping a positive workspace and hope you will push through the other side.”

Where to get help
* Lifeline: 0800 543 354 (available 24/7)
* Suicide Crisis Helpline: 0508 828 865 (0508 TAUTOKO (available 24/7)
* Depression helpline: 0800 111 757
* MATES in Construction 24/7 Helpline 0800 111 315.
* If it is an emergency and you feel like you or someone else is at risk, call 111