Alternative finance options for SMEs

With cashflow an ongoing concern for business owners, Adrienne Church takes a look at the finance options provided by today’s alternative finance providers.

Running a small business can be incredibly rewarding, but it comes with a unique set of pressures and challenges. It’s rarely a 9 to 5 job.

While many entrepreneurs start on this path because they want the flexibility of being their own boss, studies from all over the world show that small business owners spend up to twice as many hours at work in any given week compared to employees.

And as any small business owner can attest to, even when you’re not physically at work, more often than not, your thoughts are with the business. The potential impact on other areas of life, whether it’s quality of sleep, spending time with family, or enjoying a long-awaited (and well-deserved) holiday, can be huge.

Almost universally though, the biggest concerns faced by small business owners come down to managing finances and cashflow.

Whether it’s needing to hire more people and buy more stock over the busy holiday period or manage a cashflow squeeze caused by late invoice payments, the reasons for these financial worries can be many and varied. Cashflow concerns also make it difficult to jump on new opportunities to grow the business or think creatively about the next steps, whether that’s a new restaurant fit-out or a social media marketing campaign.

Traditionally, banks have been the first port of call for small business owners seeking finance in the face of any of these circumstances. But as the pace of business continues to grow, so too does the list of demands on small business owners’ time and attention – and increasingly they don’t have the time to spare on the drawn-out application processes required to access a bank loan.

After filling out multiple forms, making phone calls, and building a business plan, the decision itself can take a number of weeks; and even if you’re willing to offer up your house as collateral, there’s no guarantee the loan will be approved.

Of course, there have always been alternatives like credit cards or loans from family and friends. While each has their pros and cons, these options can blur the boundaries between personal and business affairs and generally offer a far from perfect solution.

The suite of options available to small business owners seeking finance have left something to be desired – and as the engine room of the New Zealand economy, small businesses deserve better.

We are starting to see the transformation of the small business lending market, with the introduction of alternative finance providers addressing this gap in the landscape – offering loan products that are fast, simple, and flexible. Their processes are generally characterised by short (and comparatively painless) applications, quicker turnaround and approval times, often no asset security requirements, and clearer repayment terms that work with a business’ cashflow.

Although they’re not very well-known here yet, these sorts of providers have gained significant traction overseas, and have already had a massive positive impact on economies similar to New Zealand. In Australia, for example, independent research by the RFi Group and Centre for International Economics found that for every A$1 million finance provider Prospa provided to small businesses, A$4 million was contributed to GDP and 57 FTE jobs were supported. With A$1 billion delivered to small business so far, that’s A$4 billion in GDP and 57,000 jobs for tradies, retailers, and café owners.  

In the face of the many and varied challenges that small business owners are up against each and every day, it’s critical that wider business and enterprise are looking for ways to support and foster the growth of that economic engine room – and transforming their access to finance is a great place to start.

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