Alternative lending gains popularity among New Zealand SMEs

Prospa's recent survey reveals that alternative lending is gaining ground among small and medium-sized enterprises (SMEs) in New Zealand, with businesses preparing for a crucial summer period.

The Prospa SME Insight Report indicates that half of the SMEs surveyed consider the summer season important for their business. Within this group, 43% expect a better season than the previous one.

Concerns among SMEs include generating sufficient customer demand, with 17% indicating this as a primary issue. For those who regard the summer season as important, 36% are more worried about having adequate staff to meet demand.

There is also competition pressure, with 52% of SMEs feeling the need to offer sales or discounted pricing during the summer. Despite these challenges, SMEs remain hopeful, with over half anticipating improved market conditions in the next 12 months, 48% expecting stable profits, and 32% foresee an increase.

Adrienne Begbie, Managing Director of Prospa NZ, comments, "Being a business owner in today's climate is no easy feat. While many of us will be winding down for the year, many small to medium business owners will be amping up. It's a timely reminder to support your local businesses who will be working through the Christmas and summer break."

Begbie adds, "It's certainly comforting to see that small business owners are starting to feel more optimistic about the current health of their business, after what's been a challenging few years. This resilience and perseverance is a display of hard work and dedication we Kiwis seem to inherit."

Data from last year shows an increase in SMEs utilising financial products, with a 22% month-on-month rise in new Line of Credit accounts from November to December and a 15% rise in credit value to accommodate seasonal business changes.

Despite these positive signs, some financial vulnerabilities remain. 62% of SMEs report a positive outlook on their business's current health. However, cautious optimism persists, with 56% remaining wary of the next year's climate due partly to uncertainties in cash reserves. Half of SMEs only hold cash reserves for a quarter's expenses, and 17% have less than one month's reserves.

Begbie advises businesses facing cash flow issues to consult professionals for effective financial management.

The report highlights ongoing challenges for SMEs, with staffing, government taxes, and inventory cited as top concerns; these issues have been relatively stable since May 2024. Inflation, wage increases, and supply costs are contributing factors.

SMEs are taking proactive steps to address these challenges. 28% plan to expand market reach, while 27% will adjust pricing, and 25% intend to increase marketing investments.

The report finds that the perception of alternative lending is shifting positively, with 65% of SMEs aware of alternative lenders and 45% trusting these institutions for business financial solutions.

This shift in perception aligns with the Commerce Commission's ongoing inquiry into banking competition, providing context for the growing trust in alternative lenders. Begbie notes, "It's gratifying to see consumers and business owners adopt nonbanks as their first choice. The more people use nonbanks and alternative lenders, the better this is for banking competition in New Zealand."