Prospa sees rising need for business loans

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SMEs are foregoing banks and going straight to advisers for help with financing — and non-banks like Prospa can arrange loans quickly with minimum fuss

THE POST-COVID economy hasn’t turned out to be the smooth sailing that many owners of small to medium-sized businesses hoped for a year ago. Promises of pent-up demand are fading as consumer sentiment becomes shaky in the face of inflation and rising costs of living. SME efforts to jump-start growth are also being stymied as mainstream lenders restrict lending, with stricter criteria and the continued hiking of interest rates. “Many small businesses have missed an opportunity for growth by not being able to access the funds required through mainstream banks,” says Adrienne Begbie, managing director at non-bank lender Prospa New Zealand.

Prospa Group Limited (ASX: PGL) is a leading fintech with a commitment to unleash the potential of every small business in Australia and New Zealand. We do this through an innovative approach to developing simple, stress free and seamless financial management products and services. Since 2012, we have provided more than $3 billion of funding across Australia and New Zealand, to support the growth and operations of thousands of small businesses. We also work with more than 12,000 trusted brokers, accountants, and aggregator partners, to deliver flexible funding solutions to their clients. At Prospa, we're serious about our impact on our people, communities, and the planet. Our core company value of One Team is backed by our recognition as a Great Place To Work in Australia and a WORK180 Endorsed Employer for Women. For more information about Prospa, visit prospa.co.nz.

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“A growing number of small businesses are seeking the help of advisers to help solve their finance needs even before going to their own banks”

Adrienne Begbie, Prospa New Zealand

Recent research by RFI Global* found that only 56% of small businesses that applied for funding in the past six months received the full amount they requested. In this scenario, the only thing pent up is business owners’ frustration at not being able to access capital to ride out the storm or finally set in motion plans that were put on ice during the restricted pandemic economy. “Many small businesses are facing increased operating costs and staff shortages, and all these factors have an impact on the decisions that traditional lenders and banks are making,” says Begbie.

“With all of this at play, it’s easy to see why there’s a level of general uncertainty about the future.” Against this background, non-banks like Prospa are in an ideal position to support SMEs by filling the gap that traditional banks appear to be vacating. Reserve Bank data shows that non-bank lending to businesses has been rising at an average 10% clip year-on-year for most of the last 12 months. Prospa is at the forefront of this wave. “There’s quite an appetite for alternative lenders from Kiwi small businesses, as Prospa NZ saw a 57% increase in originations this financial year to reach $131.8m,” says Begbie.

When one door closes… The wider economic environment and the tightening of lending criteria at mainstream banks means that this steady increase in demand is likely to continue. This provides a key opportunity for advisers to branch out from a heavy reliance on residential lending, an area that is itself facing headwinds as the property market continues to cool. “With more traditional lenders and banks having tightened their lending criteria, the demand for alternative lenders has increased, and we expect this to continue to increase,” says Begbie. SMEs that have accessed non-bank funding through an adviser once often come back to them and forgo longstanding relationships with their regular banks. “A growing number of small businesses are seeking the help of advisers to help solve their finance needs even before going to their own banks,” says Begbie. “Diversifying ensures that you can help your clients with all their financial needs.” Another factor is the growth of the adviser channel itself. “Over the last 24 months the adviser market share of mortgages settled has increased, which is also driving more customers to non-bank solutions,” says Begbie. Sure, some advisers who may not have ventured into commercial lending before may feel apprehensive about adding a new tool to the toolbox, but Prospa provides robust support to help deals get through to settlement.

“Prospa has purposefully designed our offering to be simple and as hassle-free as possible for our advisers and their clients,” says Begbie. At Prospa, a team of leading business development managers are there to support adviser partners, and regular educational webinars and training sessions are conducted. Marketing resources are also available to help attract leads and grow an adviser’s business, such as a full-suite marketing offering including a landing page, regular email newsletters, and articles with the adviser’s self-branding. Becoming accredited can take as little as 10 minutes, so there’s no reason to wait. “Adding SME commercial lending to their suite of services is not as complicated as advisers may think,” says Begbie.

“Adding SME commercial lending to their suite of services is not as complicated as advisers may think”

Adrienne Begbie, Prospa New Zealand

Sectors performing less well include construction and retail. Labour shortages, rapidly rising operational expenses and a tightening economy are making it increasingly challenging for some businesses to trade sustainably. Education and training enterprises are also suffering as fewer people need to go back to school in the current jobhunters’ market and international students prove slow to return in large numbers. But sectors experiencing a temporary pinch can also provide more opportunity for advisers when it comes to alternative lenders like Prospa, because these businesses are more likely to have their funding applications tripped up at mainstream institutions.

SMEs also generally need cash quickly, and making a fast decision on an application with minimal paperwork is something non-banks excel at. Prospa can turn around a commercial loan application in as little as 24 hours, and most of the process can happen online. “Our recent origination results at Prospa have proven that Kiwis are increasingly choosing to access funds with alternative lenders, ensuring that they don’t have to pull back on costs that may hinder their businesses’ growth,” says Begbie. Despite this demand, commercial lending is still somewhat under the radar as an option for advisers in New Zealand compared to their counterparts in Australia or elsewhere. “There’s still a way to go for advisers to expand their knowledge of how non-banks operate so they understand how other lenders can be an incredibly valuable asset to add to their funding toolkit.” But Prospa sees this as a mutual opportunity to build adviser businesses over the long term. “We know that the adviser’s client relationships are at the core of what they do, so we can tailor how you work with us,” says Begbie.

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56%

32%

11%

Received full amount requested

Declined

OUTCOME OF SME APPLICATIONS FOR FUNDING OVER LAST 6 MONTHS

Received portion of amount requested

Source: RFI Global

A mixed market Commercial lending offers a range of specialisations by business sector, and each area has its own market dynamics. According to Centrix, the strongest business sectors at the moment include healthcare and social assistance, agriculture and transport. These industries are likely to continue to see strong demand, even in the event of lower overall consumer demand, given the essential nature of the goods and services they produce. Advisers should be reaching out to their SME clients in these sectors to see how access to flexible, fast funding can help them take advantage of growth opportunities. Lenders such as Prospa provide tailored solutions that enable SMEs to access finance fast so they don't miss any opportunities.

Aug

YOY CHANGE IN NON-BANK LENDING TO BUSINESS - 6 MONTHS TO AUG 2022

Mar

May

Jul

$1bn

$2bn

$3bn

$4bn

$5bn

$6bn

$7bn

$8bn

$9bn

$10bn

2021

2022

Source: Reserve Bank of New Zealand sector lending (C5) data, Aug 2022

+12.9%

Apr

+13.6%

+15.4%

Jun

+11.2%

+10.3%

+10.7%

YOY CHANGE IN NON-BANK LENDING TO BUSINESS - 6 MONTHS TO AUG 2022

$1bn

$2bn

$3bn

$4bn

$5bn

$6bn

$7bn

$8bn

$9bn

$10bn

2021

2022

Source: Reserve Bank of New Zealand sector lending (C5) data, Aug 2022

Mar

+12.9%

Apr

+13.6%

May

+15.4%

Jun

+11.2%

Jul

+10.3%

Aug

+10.7%