How TEIs can borrow funds

Me pēhea te tono pūtea taurewa a ngā Kura Mātauranga Matua

Last updated 3 November 2016
Last updated 11/03/2016

This page sets out the processes and approvals required for tertiary education institutions (TEIs) to borrow or raise money.

About borrowing and the approval process

The Secretary of Education needs to approve any application by a TEI to borrow, issue debentures or otherwise raise money.

Section 192(4)(d) of the Education Act 1989

What does borrowing mean?

The term borrowing includes bank loans, finance leases, and arrangements with another party for the deferral of payments for the purchase of material assets or expenditure.

What is the process to get approval?

There are five steps in the process for getting approval to borrow:

  1. Contact your TEC Investment Manager and provide information on how much you wish to borrow and for what purpose.  Your Investment Manager will contact our Monitoring and Crown Ownership (MCO) team to discuss what is involved and whether you will need a business case to support your application. You may also contact MCO directly with your requirements.
  2. Provide us with a formal written application. For major borrowing, you will need a full business case to support your application. A business case is usually not needed for small overdrafts and finance leases. However, finance leases need some additional information.
  3. MCO assesses your application and supporting business case (where required). If we need more information we will let you know within two weeks of receiving your application.
  4. Depending on the size and nature of the borrowing application, further legal work may be needed (for example, if a Crown lease is required). Our assessment of an application may involve discussions with your senior management team and a visit to your campus.
  5. We will decide whether to recommend to the Secretary for Education to grant or decline the consent to borrow under Section 192(4)(d) of the Education Act 1989 (the Act). We aim to make a final decision on borrowing applications within a month of receiving a complete application. You should allow a further four weeks for us to advise the Secretary for Education of the application and our recommendation, for the borrowing consent to be granted, and the application process to be completed. The Secretary usually gives approval to borrow, subject to certain standard terms and conditions. We will discuss and agree these with you on behalf of the Secretary for Education.

 

How to prepare a successful business case for borrowing

The Government seeks to encourage TEIs to source capital funding from private sector financiers or other sources. These include asset rationalisation or using internal cash flows.

The guide below sets out what information is required in a business case or proposal for borrowing from a commercial source. The guide is not mandatory but intended as a generic framework to help you build your own business case.

A guide for TEIs to prepare a business case for borrowing (PDF, 212 Kb)

We also need a business case as part of our assessment and recommendation to the Secretary for Education to grant consents to borrow under Section 192(4)(d) of the Education Act.

Section 192(4)(d) of the Education Act.

For borrowing over $1 million, your business case must provide at a minimum, all the information set out below under the heading Business Case.

For borrowing under $1 million, contact your Investment Manager to find out what information you need to provide.

Treasury guidance on business cases

More information on preparing business cases for the Secretary of Education can be found on The Treasury website Better Business Cases web page.

The ingredients of an effective business case

A good business case framework:

  • explains why you need to invest in a project
  • is a systematic process that enables you to evaluate options for investment
  • enables the project funders to balance priorities and evaluate the value-added of implementing the project/s
  • provides a sound planning framework from concept stage through to option evaluation, project initiation, procurement, completion and benefit realisation.

A business case is a tool that helps you make business decisions by predicting how they will affect your organisation.

An effective business case will:

  • convince management that the investment is financially sound
  • be realistic for the organisation
  • align with other business strategies
  • include a clear course of action for putting the change into effect
  • identify the goals and measures for tracking the move to the new business or approach
  • include the methods and rationale used for quantifying the benefits and costs
  • list the critical success factors and contingencies that must be managed for the predicted results to be realised.

Successful borrowing applications are required to:

  • be open and honest
  • be flexible
  • have reasonable expectations
  • produce a document acceptable to institutional lenders for financing
  • recognise the key risks and specify clear risk management strategies
  • recognise the needs of financiers.

Banks will typically base their lending decisions on:

  • a TEI’s ability to service the borrowing through the generation of free cash flows
  • the economics of the project being financed
  • the management of the TEI’s ability to deliver on the project, manage risks and manage the financial affairs of the institution
  • security that can be provided. 

When TEIs can borrow without approval

In some cases, a Ministerial determination in May 2014 allows TEIs to borrow up to a specified limit without the approval of the Secretary for Education. 

The determination allows:

  • all TEIs to borrow up to 2 percent of their group’s consolidated total revenue in certain specified borrowing instruments (e.g. overdrafts or finance leases) without the Secretary of Education’s consent, and
  • well-performing TEIs to borrow up to $50 million or 10 percent of their group’s consolidated total revenue, whichever is less, without the Secretary of Education’s consent, so long as they meet certain criteria.

Further information is available from the determination’s Gazette notice and in our Guidelines:

More information

If you have any questions about exempt borrowing email them to: Teifm.info@tec.govt.nz.