Optimism on the rise, says Prospa
Despite what has been a tough year for many, a growing number of small business owners are looking to the future with greater confidence, small business lender Prospa New Zealand says.
Businesses that use this time to plan ahead, get advice and stay in tune with industry trends have an opportunity to not just survive but to thrive as economic conditions improve, it says.
A SME sentiment tracker commissioned by Prospa and carried out by Clarity Insight in November 2024 showed that just over 50% of business owners felt cautiously optimistic about the immediate and longer-term future of their business, while 33% felt very confident.
Prospa New Zealand managing director Adrienne Begbie (pictured above left) acknowledged the struggles that small businesses had experienced in an environment of higher interest rates, cost pressures and lower consumer spending.
“With local retailers and restaurants shutting their doors and the ominous ‘survive until 2025’ resonating all too well, it’s undeniably challenging to be a business owner right now,” Begbie said.
Struggles were also evident within the building and trades sector, resulting in many larger developers taking on fewer projects, she said.
While the research indicated a level of pessimism in the short-term, Begbie said it also demonstrated that business owners were increasingly optimistic about the next 5-10 years, a view that aligns with what the non-bank lender was hearing.
Lower interest rates, increased spending and a fall in housing supply are among the opportunities businesses can look forward to, she said.
With falling interest rates, cost pressures starting to come out of housing and construction and a pause in housing supply, Begbie said that the construction sector was among the industries likely to see upward momentum next year.
“People are pretty optimistic about that longer-term view of the economy, which is exciting,” she said.
Rate cuts increase business confidence
Following the 0.25% interest rate cut on August 14, Begbie said that Prospa NZ had noticed optimism start to lift, giving businesses that were already performing well the confidence to borrow for cashflow or investment purposes.
More widely, rate cuts have a positive spin-off for the whole economy, meaning that consumers feel more confident about their net worth and spending money, she said.
“I think New Zealand is in a good position to capitalise on the opportunities in the future so that’s what businesses need to be looking for,” said Begbie.
Kiwibank economist Jarrod Kerr (pictured above right) told NZ Adviser the bank was forecasting a 50-basis point cut to the official cash rate in November, taking it from 4.75% to 4.25%.
Kerr said that since the first rate cut, business owners had almost snapped out of the “survive until 2025” mentality and were now looking to 2025 with more confidence.
As the official cash rate is cut and the housing market stabilises, there are things to look forward to in 2025 and 2026, a message Kerr said people had started to take on board.
“If we get another 50-basis point move in November, I think it will give businesses, particularly small businesses, a little bit more enthusiasm and excitement,” Kerr said.
Planning ahead deemed important
With Christmas just six weeks away, Begbie encouraged small business owners to lean on their financial adviser, whether to get advice on their business or discuss funding options to see the business through the holiday period.
The Prospa Line of Credit product, for which the credit limit was recently increased to $500,000, is one option available to business owners to help them maintain cashflow and prevent having to dip into personal savings, she said.
While tourism in the regions is typically strong, she acknowledged that in central cities such as Auckland, trade typically slows down.
“Coming into Christmas, businesses are either stocking up or gearing up for their slow period in January,” Begbie said. “A lot of people are away, so it’s giving them that buffer to get through.”
Small business and manufacturing minister Andrew Bayly announced in November that from the start of 2025, around 135 government agencies will be required to pay 90% of all domestic invoices within 10 business days, a change that Begbie said would further alleviate cashflow pressures.
“We work with real-time data and can already see that invoices are being paid faster,” she said. “SMEs’ performance has improved dramatically over the last three to six months.”
Maintaining a competitive edge
By keeping themselves up to date with industry trends, business owners could anticipate shifts and avoid potential pitfalls and identify opportunities for growth, Begbie said.
Business owners could take a proactive approach, observing what competitors are doing well, strategies that resonate with customers, and identifying gaps in their business offering.
In a tough environment, Begbie said that mental strength was as important as business acumen, noting that recent research showed 70% of small business owners were experiencing stress.
“It’s vital to cultivate a resilient mindset…do this by setting realistic goals and focusing on the small wins,” she said.
While uncertainty can be difficult, Begbie said it could also be an incubator for innovation, growth and adaptation.
Small business owners could use this period to their advantage by updating their business proposition, looking for opportunities to expand.
“The quiet period can give people an opportunity, time to reflect on what they’re doing, to foster some innovation or to think about what else they need to do in their business,” Begbie said. “It’s really about setting your business for success in the future”.
Looking ahead, Kerr said that global growth would likely pick up in 2025 as central banks cut interest rates. Growth in trading partners would likely benefit the export sector, while within New Zealand, rate cuts are expected to lead to a lift in spending, boosting the retail sector.
While it would likely take time, the housing market is expected to find its footing, leading to price rises.
“In six to nine months’ time, small businesses will go from worrying about their profitability, costs and workforce to starting to think about expansion again,” Kerr said.
