Can't repay your SBC loan? What happens next, and your options

What happens if you can’t repay your SBC loan?

If your Small Business Cashflow loan isn’t cleared by the end of its five-year term, Inland Revenue defaults it automatically. The unpaid balance, plus interest, becomes overdue debt, default interest is added on top, and IRD can then collect it the same way it collects unpaid GST or PAYE. Missing a monthly repayment during the term is a default too.

That is the short answer. The longer one matters because the SBC loan was a strange beast. It was a Covid-era Crown loan, applied for in minutes, interest-free for the first two years and largely forgotten by many owners until repayments began. Now the five-year clock is running out for loan after loan, and plenty of business owners are discovering that a loan they thought of as “the Covid money” is about to behave like tax debt.

This guide explains where the deadline comes from, what IRD actually does when a loan defaults, the realistic ways to deal with it, and how to decide which suits your business.

A quick refresher: what was the SBC loan?

The Small Business Cashflow Scheme (often shortened to SBCS or SBC) opened on 12 May 2020 to help small and medium businesses hit by Covid-19. It was run by Inland Revenue rather than a bank. According to IRD’s fifth-anniversary media release, more than 129,000 businesses borrowed a combined $2.4 billion, with an average approved amount of $17,000.

The key terms, in plain English:

• Who could borrow: businesses and organisations with 50 or fewer full-time-equivalent staff.
• How much: a $20,000 base plus $1,800 per full-time-equivalent employee, up to a ceiling of $110,000 under the later rules, according to IRD’s 2025 annual report note on the scheme.
• Top-ups: from March 2022, existing borrowers could take a $10,000 top-up plus anything they had been eligible for but hadn’t drawn.
• Repayments: none required for the first two years, then monthly repayments on a schedule sent through myIR.
• Term: five years from approval, with the balance expected to be gone by then.
• Closed: applications for new lending ended on 31 December 2023.

Because applications were open for more than three years, there is no single deadline. Each loan has its own five-year date.

Why is this happening now, in late 2026?

Most SBC loans were taken out in May and June 2020, so the first big wave hit its five-year mark in mid-2025. IRD said at the time that from June 2025 it would “default a loan if it has not been paid off”.

But the scheme kept lending well after the first lockdown. Owners who applied during the 2021 Delta lockdowns reach their five-year date during 2026. Top-ups drawn from March 2022 reach theirs from early 2027. Loans approved in 2023 run into 2028. So for a steady stream of businesses, the deadline is arriving right now, often in the middle of a tight year.

The scale of the problem is real. IRD’s figures as at 30 April 2025 showed:

• about 64,000 borrowers had repaid in full;
• $853 million was still owing;
• roughly 14,300 loans were already in default, owing just over $242 million.

By late 2025 the picture had worsened. The NZ Herald reported in January 2026 that, as at 21 October 2025, $748 million remained unpaid, $447 million of it in default, and IRD had written off more than $65 million. If you are behind, you are far from alone. You are, however, in a queue that IRD is actively working through.

How do I check my SBC loan balance and due date?

Log in to myIR. Your SBC loan sits in its own account (the tax type is “SBC”), separate from GST, PAYE and income tax. There you will find:

• the remaining balance, including any interest added;
• the repayment schedule IRD sent you, with dates and amounts;
• any messages about your loan expiring or a default.

One trap catches a lot of owners. IRD has said its expiry reminder letters appear in myIR but are not redirected to tax agents. If your accountant normally handles everything IRD sends, they may never have seen the warning. Check it yourself, today, and check every SBC account if you took a top-up.

While you’re in myIR, look at your other tax accounts too. An SBC balance rarely travels alone. If you have GST or PAYE arrears as well, the total is what you will be dealing with, and it changes which option makes sense.

What counts as defaulting on an SBC loan?

Plenty of owners assume default only happens at the five-year mark. In fact IRD’s page on defaulting on the SBC loan lists several common events of default under the loan terms:

1. Not making a repayment by the due date in your repayment plan.
2. The business ceasing or being sold.
3. Bankruptcy, liquidation or another creditor arrangement.
4. A false or misleading statement in the original application.
5. Using the loan for personal expenses, or passing it on to shareholders or owners.

Two consequences follow. First, once IRD demands payment after a default, the whole loan is due immediately, not just the missed instalment. Second, a top-up or second loan is in default if an earlier loan defaulted, even when that earlier problem was later resolved.

The sale point deserves a moment of its own. If you are planning to sell the business this summer, the SBC balance needs to be part of your settlement figures. A buyer’s lawyer will want clean books, and you don’t want an IRD default appearing in the middle of a sale.

What does IRD do once the loan defaults?

Once the term ends with money still owing, IRD treats the remaining balance as overdue debt and charges default interest. IRD has described that default interest as being built from its use-of-money interest plus the scheme’s standard interest, which is a lot more expensive than the loan was during its life. It is the main reason leaving an SBC balance to drift gets costly fast.

From there, collection follows the same path as other tax debt. IRD’s May 2025 release gave a snapshot of what happened to more than 1,500 customers it contacted about defaulted SBC loans and tax debt:

• almost one in five entered a payment arrangement;
• three in ten had a deduction notice placed, so money was taken straight from their bank account;
• a third settled with a lump sum.

Together those customers paid back almost $10 million. IRD has also warned of “legal action” for loans that stay unpaid. Our guide on what happens if you don’t pay IRD walks through each stage of tax debt collection, from reminder calls to insolvency proceedings.

The deduction notice is the one to take seriously. When IRD instructs your bank to pay it directly, money leaves your account without warning, wages and suppliers can bounce, and any lender reviewing your statements later will see it. Acting before that point keeps far more doors open.

What are my options if I can’t pay the SBC balance?

There are four realistic routes. Many owners end up combining two.

1. Pay it from reserves or the owners’ pockets

If the business has the cash, or the shareholders can inject it, paying the balance in full before the term ends is the cleanest outcome. No default, no default interest, nothing more to think about. Just keep enough working capital to get through the summer and the next GST and provisional tax dates, so you don’t swap one problem for another.

2. Talk to IRD about an arrangement

IRD’s guidance is consistent: if you are struggling, message it through myIR “to discuss options”. For a balance that has already defaulted, that usually means an arrangement to pay the debt off in regular amounts. It is a sensible route for smaller balances you can clear within a few months.

Be realistic about the trade-offs. Default interest keeps running for the life of the arrangement, the instalments land on top of your normal GST and PAYE, and a missed payment can bring collection action straight back.

3. Refinance the SBC balance, ideally with any other IRD arrears

A business loan can pay Inland Revenue in full, with the funds going directly to IRD. The SBC balance is closed, default interest stops, and you repay a lender on a schedule set at the start. If you also owe GST, PAYE or income tax, it often makes sense to clear the lot at once so you have one repayment and a clean myIR account.

LoansOne arranges unsecured business loans and fast, flexible 1st and 2nd mortgages for business purposes, from $20,000 to $500,000. That minimum matters here. Many SBC balances are well under $20,000 on their own, so a loan usually stacks up when the SBC balance sits alongside other IRD arrears, or other expensive short-term debt you’d like to roll together. Our page on business debt consolidation explains how that works.

4. Get proper advice if the business can’t recover

If the honest answer is that the business can’t carry the debt under any arrangement, talk to your accountant and, if needed, a licensed insolvency practitioner before IRD forces the issue. That isn’t where most owners reading this will land, but it is better to know early.

Owe IRD on an SBC loan and want to see whether refinancing makes sense? Check your options in about 60 seconds. There’s no credit check at the enquiry stage.

SBC loan options compared

How to deal with an overdue SBC loan, step by step

1. Log in to myIR this week. Note the SBC balance on every loan, the term end date and your other tax balances.
2. Read every message in the SBC account. Look for expiry reminders or default notices your accountant may not have seen.
3. Work out the total you owe IRD. Add SBC, GST, PAYE, income tax and provisional tax. The IRD debt calculator shows roughly how overdue tax grows if it’s left.
4. Message IRD before the term ends. Tell it you are working on a plan. Silence is what pushes a file towards a deduction notice.
5. Get your paperwork together. Recent business bank statements, filed returns, photo ID for each owner, and property details if you own a home or commercial building.
6. Compare the routes over the same period. Put the total cost of an arrangement next to the total cost of a loan, every fee included. The compare loan offers tool makes that side-by-side easy.
7. Act, then confirm. Once you’ve paid or refinanced, check myIR a few days later to make sure each account shows zero.

What do lenders check when a loan is clearing IRD debt?

Lenders who work with tax debt see SBC balances regularly. They want to understand four things:

• How the debt built up. A short, honest explanation goes a long way. “We took the SBC loan during the 2021 lockdown and trade has been slower than expected since” is a story lenders hear every week.
• Whether returns are up to date. Filed GST and income tax returns show the real figure and that you’re on top of compliance now.
• How the business trades today. For unsecured loans, recent bank statements carry most of the weight. Regular deposits and sensible balances count for more than a perfect history.
• What security is available. If you own property, a 1st or 2nd mortgage can work even when financials are thin or credit has taken a knock. Bad credit is considered.

They’ll also look for deduction notices in your statements and for any other debts. Mention everything at the start. Surprises later slow a file down; disclosed problems usually don’t.

For more on how lenders treat tax arrears in general, the IRD debt loans page covers the detail, and our guide on how to pay IRD tax debt compares every route for GST, PAYE and income tax.

Worked example: a Nelson landscaping company

This is an illustration, not a real client. A landscaping company in Nelson took an SBC loan in September 2021, during the Delta lockdown, based on eight full-time staff. It added a $10,000 top-up in April 2022. Repayments started in 2023 but slipped during a wet 2025, when jobs were cancelled week after week.

In October 2026 the owner logs in to myIR and finds:

• about $14,000 left on the original SBC loan, which has just passed its five-year date;
• the top-up still running, but now caught by the first loan’s default;
• roughly $11,000 of GST arrears and $6,500 of PAYE from the winter.

Option A: arrangements with IRD. No new borrowing, but three tax accounts to juggle, default interest on the SBC debt, ongoing penalties on the PAYE, and instalments falling right in the busy spring season when the company needs cash for materials and summer staff.

Option B: one loan to clear the lot. The total comfortably passes the $20,000 minimum. The owner owns a home in Richmond with good equity, so a 2nd mortgage is possible, as is an unsecured loan based on strong spring bank deposits. A lender pays IRD directly, every account goes to zero, and the company has one repayment it can plan around.

After comparing the full cost of both, including every loan fee, the owner chooses option B. For a business owing only a few thousand on its SBC loan and nothing else, an arrangement would likely have been the better call.

How to stop it happening again

Whatever route you choose, a few habits keep IRD off the phone:

• Set up a tax account. Move GST and PAYE into a separate bank account each time money comes in.
• Diarise the big dates. GST, provisional tax and terminal tax, plus any loan term end dates.
• Check myIR monthly. Not just the accountant’s summary, the accounts themselves.
• Plan for the slow season. If your business is seasonal, build the quiet months into your cash flow before they arrive.

Ready to clear the SBC loan and move on?

The SBC loan kept a lot of Kiwi businesses alive when it mattered. It shouldn’t be the thing that trips you up five years later. We help owners sort out Inland Revenue debt all the time, including SBC balances that have quietly defaulted, and we don’t see an IRD debt as a reason to say no. Often it’s exactly why a loan makes sense.

Here’s how it works with LoansOne. The enquiry form takes about 60 seconds, and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so you won’t be fielding calls from companies you’ve never heard of. A real person looks at your situation, including what you owe on the SBC loan and any other tax, and then calls you to talk through options that genuinely fit. Please fill in the form accurately, especially the total owed to IRD, so we can match you with the right lender first time.

Rather talk it through? Call us on 09-888 5252.

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