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Access to capital is key to rebooting our small business economy

If 2020 has made one thing clear, it is that New Zealand’s economy depends on small business.

Tuesday, December 29th 2020, 11:29AM

by Adrienne Church

The response from both government and industry this year has been swift, unprecedented and effective, helping thousands of cafes, retailers, tradies, and hairdressers to make it through the pandemic.

Everyday New Zealanders have also done their part, supporting Buy Local campaigns and rallying behind business owners in their communities. But as we enter the new year, we need small businesses to thrive, not just survive, and access to capital remains a key barrier to growth. If small businesses are the engine room, capital is their fuel and improving access will be crucial for rebooting the economy.

It has often been difficult for small businesses to access funding from banks and traditional lenders, and for many it is not getting any easier.

Banks can find it tough to assess small business credit in an efficient way and for many small business owners, securing a yes from their bank can require a significant amount of time and often securing that loan against a property. Unsurprisingly, in today’s housing market, that is not always a realistic option. Especially for younger entrepreneurs.

Small business owners are also time poor – Prospa research shows nearly half (49%) work between six-seven days a week, with one in five working a full seven days. Loan applications can require pages and pages of information, detailed business plans and forecasts, and often still take weeks for a response, by which time the growth opportunity may have come and gone. Blink and you miss it.

Take an ice cream store owner in a beachside town wanting funds to hire staff and purchase new machinery for the busy summer period. Or a retailer with an opportunity to purchase bulk stock upfront at a significant discount.

Or a tradie who needs additional supplies to squeeze in an extra few jobs before the quiet January period.

They often cannot afford to wait four weeks to hear back.

If small businesses looking to invest in their success cannot access the capital they need, when they need it, at best the business stays at a standstill. At worst, it goes backward.

This is the exact reason non-bank lenders like Prospa entered the New Zealand market almost two years ago, and while awareness and adoption is increasing, it is still relatively low compared with other countries like Australia and the UK.

Many small businesses remain unaware they have alternative options to banks and traditional lenders, particularly if they can’t provide asset security upfront for a loan. As a result, they often either fail to access the capital they need or instead turn to personal credit cards or borrow from family and friends.

Mixing personal and business finance often happens out of necessity but can add additional stress and reduce cash flow visibility in the business.

The non-bank sector plays an essential role in promoting innovation, competition, and improving the flow of credit to more small businesses, who as a community can have varied and niche funding needs.

The strength and opportunity are in the data. As an example, Prospa’s credit decision engine analyses over 450 unique data points with every small business application, enabling us to look through the cycle, predict cash flow recoveries based on internal insights and the broader macro environment and understand risk.

Throughout the pandemic this technology kept learning, putting us in a strong position to support more small businesses with timely (often within 24 hours) access to credit as they plan, recover, and rebuild.

It is more important than ever that small business lending remains competitive, not just over the next few months, but in the long term as we rebuild a strong and healthy economy. Greater competition provides more avenues for the S in SMEs – especially the thousands of sole traders and microbusinesses – to access funding and grow. There are encouraging signs we are heading in the right direction.

It is great to see the Ministry of Business, Innovation and Employment seeking input on the possibility of developing a consumer data right in New Zealand.

Doing so would give small businesses and consumers greater choice and control over their financial data, making it easier for them to compare a wider range of products and services and potentially switch from traditional lenders to alternatives.

More small businesses in every industry are now embracing digital products and services, with changing expectations around customer experience and service creating new opportunities to drive consideration of alternatives to the banks. 

Capital has long been a barrier to growth for many small businesses in New Zealand but through the pandemic it has come under the spotlight.

These businesses make up the fabric of our communities, bring our neighbourhoods to life, and keep the nation running. And many are now getting back on track and ready to prosper. As we enter 2021, let’s ensure we keep focused on improving access to the capital they need to invest in their future, so the small business economy can thrive, not just survive.

Adrienne Church is the general manager of Prospa New Zealand, the small business lending specialist.

Tags: Opinion Prospa

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.09 3.25 3.39
ANZ Special - 2.49 2.69 2.79
ASB Bank 4.45 2.49 2.59 2.65
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.49 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.09 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.45 2.65
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 ▼3.20 ▼3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.99 3.09 3.15
SBS Bank Special - 2.49 2.59 2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 2.99 3.19 3.29
TSB Bank 5.34 3.29 3.29 3.59
TSB Special 4.54 2.49 2.49 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - ▼2.29 2.69 2.79
Median 4.54 2.95 2.99 2.97

Last updated: 14 January 2021 11:22am

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