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Businesses left struggling with debt as a result of Covid-19 have been given a further reprieve.

The Government has extended its debt hibernation scheme until October next year. It had been due to expire on Christmas Eve.

It allows businesses who meet certain criteria to put their debts on hold for up to seven months.

Finance Minister Grant Robertson said the New Zealand economy was recovering better than expected but the impacts of the pandemic were far-reaching and some businesses needed continued support.

"To help companies that are struggling due to Covid-19, we are keeping the business debt hibernation scheme open until 31 October, 2021.

"This is intended to give businesses time to explore options for continuing to trade, when they might otherwise have been liquidated by their creditors."

Commerce and Consumer Affairs Minister David Clark said preventing insolvencies meant retaining jobs and cashflow in the economy.

"Business debt hibernation gives some breathing space to businesses that are doing it tough. It means when creditors start applying pressure, company directors have the support of a tailored mechanism to work through options with their creditors to find a way forward.

"This is a good outcome for not only company owners but also their employees, creditors and the wider economy."

The move was welcomed by Business New Zealand.

Chief executive Kirk Hope said he was heartened by the Government's focus on the economic preservation and recovery from the global shock of Covid-19, which needed to be treated with the same urgency as the health response.

"This extension will certainly give businesses going through hardship peace of mind going forward and assist with the ongoing economic recovery.

"While New Zealand's economy appears to be on the road to recovery, the impacts of the pandemic are far-reaching and there are pockets of businesses in various sectors that need continued support to keep their doors open."