The recent economic strains have led small and medium-sized enterprises (SMEs) in New Zealand to seek various funding methods to sustain their cash flow. According to a recent survey by the RFI New Zealand SME Banking Council commissioned by Prospa, approximately four out of ten businesses are securing funds to stay afloat.

However, cash flow is not the only factor pushing businesses to seek funding. Prospa's research demonstrates that they also venture to finance to purchase inventory (37%), acquire equipment (37%), handle invoices (31%), and fuel business expansion (27%).

Despite these motivations, a significant majority of businesses express their concerns about their capacity to access necessary funds. 81% of SMEs surveyed voiced this worry, and as a result, some are resorting to scaling back operations to minimise costs (24%) or seeking professional advice (22%), while others negotiate with their clients for earlier payments (20%).

Furthermore, the research revealed that SMEs were less inclined to utilise business banking products compared to last year. The reasons behind this vary from the quest for competitive interest rates, greater flexibility on repayments, and the conveniences of online banking, features that may not often be extended to small businesses. In the realm of business lending, a fifth of SMEs reported a reduction in their borrowing, while others find themselves negotiating lending terms with their banks (15%).

Interestingly, around 10% of businesses are venturing into non-traditional alternatives such as non-bank providers for loans and financing schemes. Businesses with increased annual turnover show a clear preference for these alternative options.

However, awareness of these non-bank lenders remains relatively low despite their offering what SMEs frequently need—loans with more flexible payment schemes. About 35% of businesses confessed to a lack of knowledge of these alternative lenders. Of those already aware, 37% stated their willingness to consider these alternatives for a business loan within the upcoming year.

Key attractions for SMEs towards these alternatives include lower fees or charges (36%), faster access to funds (35%), more flexibility (27%), and quicker product approvals (25%). The predominant hindrances for businesses to fully utilise these alternatives are the lack of awareness or understanding of the benefits of these non-bank lenders.

Discussing the issue, Adrienne Begbie, Managing Director of Prospa NZ, highlighted, "Now is the time for advisers to proactively speak to their clients about how to reduce their business's financial risk and lower their exposure over both the short and the long term. Businesses often need advice to navigate such times and many simply don't know about non-bank lenders."

She emphasised the resilience of well-informed businesses, saying, "But we've seen how businesses that are well informed can pivot their businesses to adapt to such challenges and do really well from it. It's all about knowing what's out there and making smart decisions."

The RFI research was conducted between November and December 2023, and 500 SME operators participated. SMEs are defined as businesses with global annual revenue below NZD$14 Million. All respondents were decision-makers within their businesses.