SME demand spurs brokers to expand lending

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Economic pressures are driving small businesses to seek diverse financial solutions, prompting advisers to broaden their services. Discover how to thrive in this evolving landscape

THE LANDSCAPE of financial advising in New Zealand is entering a transformative period. As small and medium-sized enterprises grapple with economic challenges, they’re increasingly turning to financial advisers for support in accessing much-needed funding. This shift is prompting many brokers to expand their services beyond traditional residential lending to meet the diverse needs of their business clients. One result is the growing amount of business funding deriving from non-banks.

Prospa is New Zealand’s small business online lending specialist providing market-leading capital products and solutions to help Kiwi small businesses grow and prosper. Established in 2012 in Australia and 2018 in New Zealand, Prospa ensures applications are simple and funds can be accessed within 24 hours. Its cash flow products and services help small businesses grow and take advantage of opportunities to run their businesses or pay for goods and services.

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“We offer tailored support and experience-driven advice to help brokers work more effectively with our technology and tap into the SME market”

Adrienne Begbie, Prospa New Zealand

A recent update from the Xero Small Business Index New Zealand further underscores this shift. The data showed that while sales were flat or had dropped, jobs at SMEs were still growing almost as strongly as last year. An acceleration in wages growth also showed that small businesses are willing, and currently able, to pay larger wage rises to secure staff as well. Begbie says, “It offers a good reminder to small business owners about staying across the finances of their business and working closely with a financial adviser to make informed decisions.”

For brokers looking to diversify their services, the first step often lies within their existing network. “Start by talking to your existing client base. Chances are that there are already many business owners in your book who need support finding the right cash flow solutions but are unaware of the options available to them,” Begbie says. Despite higher awareness of alternative lenders in New Zealand, there’s still a significant gap in uptake. According to RFI Global research commissioned by Prospa, only 19% of businesses would consider taking out a loan with an alternative lender in the next 12 months.

Looking ahead, Begbie foresees an increasingly critical role for advisers in supporting small businesses. “Prospa research commissioned in partnership with RFI Global revealed that more than half of SMEs are expecting a decrease in turnover in the next 12 months, making it abundantly clear that cash flow challenges are still permeating the small business landscape,” she says. As awareness of alternative lenders grows among SMEs, clients will expect comprehensive financial services from a single trusted adviser. Technology will continue to be a key enabler, helping advisers set expectations up front and streamline the loan writing process. Begbie highlights Prospa’s approach: “We offer tailored support and experience-driven advice to help brokers work more effectively with our technology and tap into the SME market.”

These tech-driven solutions are designed to be accessible and efficient. “Our loan process can also be completely digital, allowing advisers to quickly identify, realise and convert an opportunity in hours,” Begbie adds.

Tapping into new clientele

The future of broker diversification

Published 26 Aug 2024

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“Whether your clients are looking to invest in their business or just need a safety net to ride out an uncertain economic environment, our Business Line of Credit continues to fill a gap in the market”

Adrienne Begbie, Prospa New Zealand

Adrienne Begbie, managing director of Prospa in New Zealand, is observing a notable change in client expectations. “There’s a growing expectation from small business owners to be able to go to one trusted adviser for all their financial needs,” she says. This trend is reflected in Prospa’s data, which shows that the largest cohort of its partners actively sending leads and settling SME deals in New Zealand typically specialise in mortgages.

The shift to non-residential lending

Venturing into alternative lending can be daunting for brokers, but support is readily available. “If you’re new to the alternative lending space, don’t hesitate to lean on the experts,” Begbie says. “Prospa has been operating in New Zealand for five years now, and for 12 years in Australia, having delivered over $4 billion in funding to support small businesses.” Prospa offers comprehensive support through tools and training to help partners identify opportunities to address their clients’ cash flow needs. Begbie recommends advisers engage with their teams or access the Prospa Partner Portal for guidance.

Navigating new waters

Among the alternative lending products gaining traction, the Business Line of Credit stands out. “Whether your clients are looking to invest in their business or just need a safety net to ride out an uncertain economic environment, our Business Line of Credit continues to fill a gap in the market that many business owners have come to rely on,” says Begbie. The flexibility of this product is a key selling point. “Customers only pay interest on the amount they draw down from the Business Line of Credit,” Begbie says, “and as a committed funding product, the ongoing access to capital provides much-needed peace of mind when their need for additional funds arises.” The popularity of this product is evident in Prospa’s settlement data, with about 55% of settlements from the adviser channel being for the Business Line of Credit product. As the financial landscape continues to evolve, brokers who diversify their services and embrace new technologies will be best positioned to meet the changing needs of their clients. By staying informed, leveraging expert support and focusing on customer needs, advisers can navigate this shifting terrain and emerge as indispensable partners to SMEs in these challenging times.

Popular alternative lending products

NZ Small Business Index shows mixed conditions

Average results for June quarter 2024

Source: Xero Small Business Index New Zealand Update, April–June 2024

*Overall measure of improvement/decline in small business economy relative to average month (>100 = improvement; <100 = decline)

Sales

Time to be paid

Index

Wages growth

Employment growth

-1.5% YoY

23.9 days (up 0.8)

133*

+3.6% YoY

+6.7% YoY

Source: Reserve Bank of New Zealand, Non banks: Funding and claims by sector (T4) data

Jun 2023

Sep 2023

Mar 2024

Jun 2024

Dec 2023

Non-bank funding to businesses on the rise

Value of non-banks’ business funding by quarter ($m)

8,000

9,000

10,000

In times of economic uncertainty, understanding client needs becomes even more crucial. Begbie emphasises the importance of being “customer obsessed” at Prospa. “By gaining a deeper understanding of your customers’ holistic financial needs, you’ll be able to identify gaps,” she explains. One product that has proven particularly effective during these challenging times is the Prospa Business Line of Credit. Begbie says, “Customers only pay interest on the amount they draw down from the Business Line of Credit, and knowing that they’ve got a stable source of funding that they can use, and reuse, has been hugely successful for our partners and their business customers.”

Begbie attributes the low number in New Zealand to a lack of education and sees opportunity for advisers to have proactive conversations about their business needs and available options – and then make sure they offer them.

8,903

9,402

9,378

9,090

9,036