Why alternative lending is on the rise
Running a small business in New Zealand can be incredibly rewarding, but it is far from a typical nine-to-five job. It comes with unique pressures and challenges, with maintaining cash flow being a significant one.
Small businesses often need funding fast, but traditional big banks can present hurdles such as stringent lending criteria and prolonged approval processes. This has driven many business owners to seek alternative funding options.
“Stringent lending criteria often disqualifies businesses with less-than-perfect credit histories or those that cannot provide substantial collateral, along with an often-prolonged approval processes means now more than ever business owners are seeking funding options from other places,” said Adrienne Begbie, managing director of Prospa NZ.
“Despite our Kiwi number 8 wire mentality often driving business innovation, there seems to be an enduring idea that it’s best practice to secure financing through traditional banking. Of course, major banks bring a level of familiarity, but businesses could be missing out by overlooking the alternatives.”
Thinking outside the box
The Commerce Commission's investigation into competition in the banking sector highlights the need for a fairer system to support small businesses and the economy.
As the government reflects on the role of traditional banks, Begbie said it's an opportunity for business owners to consider their banking experiences and explore other avenues.
“At Prospa, we offer just that. As an alternative funding avenue, we’ve gone all in on filling the gaps and providing small business owners with the financial services they need but may have been missing out on,” Begbie said.
“For a long time, banks were the only option for most small businesses needing funding. But for the last five years since entering the Kiwi market, we've provided small business owners with a new and improved avenue to access additional funds.”
Prospa’s Australian parent company was co-founded in 2012 by two small business owners, who couldn’t get the loan they needed.
Understanding the needs of small businesses, inside and out, has always been a part of Prospa’s DNA, according to Begbie.
“We’ve had years of experience in Australia creating, testing, and perfecting our offerings for small business leaders.”
Prospa ensures that small business owners receive quick decisions, usually within the same business day, and funds in their accounts within 24 hours.
“We know many small businesses struggle to fit traditional lenders’ strict criteria, so we assess each application on a case-by-case basis,” Begbie said.
“We also recognise that small business owners don’t have the luxury of time, so we created an app to help them stay on track of their cash flow, allowing them to better manage expenses and repayments, so they can focus on running their business.”
Trust the experts
While traditional banks are familiar, Prospa has built a trusted network of advisers to provide expert opinions.
According to the recent 2024 Kantar Corporate Reputation Index, 27% of respondents said their most trusted sources of information about companies come from expert opinions.
“Business owners will welcome advice on broader options to support the acquisition of funds for business development or cash flow through financial advisers,” Begbie said.
“As such, you have licence to recommend these different avenues, educating clients on channels they may be unfamiliar with, or have preconceived notions about.”
Alternative lenders can offer a stress-free helping hand for SMEs in need of timely and flexible financial solutions. Prospa is one such example, with a model tailored specifically to meet the needs of small businesses, offering faster approval times with funds accessible within 24 hours.
“In fact, our RFI-commissioned research revealed the top drivers for SMEs to use an alternative lender over banks as fast access to funds (35%) and quicker approvals (25%),” Begbie said.
“Our RFI-commissioned research shows that around 22% of small businesses say they will likely be seeking professional advice about their business finances in the next 12 months. This is promising - as an opportunity for financial advisers, but also for the prosperity of New Zealand’s small businesses.”
In just five years in Aotearoa, Prospa has facilitated more than $500 million in lending to nearly 10,000 small businesses, and around 70% of its business in New Zealand now comes via the adviser channel.
Alternative lenders like Prospa should be viewed as a viable option for small businesses seeking funding. However, Begbie said Prospa’s research shows that consideration remains low.
According to recent research commissioned by Prospa, 35% of businesses are not aware of alternative lenders.
“Advisers play a vital role in educating small businesses about their financing options, so, rather than defaulting to the traditional ‘big four’, don’t overlook the alternatives,” Begbie said.
