Extending the Government’s Business Finance Guarantee Scheme to fintech lenders

OPINION: The Government’s decision to include fintech lenders under the Business Finance Guarantee Scheme (BFGS or Scheme) is a crucial opportunity to boost the flow of capital to New Zealand SMEs. This is exactly what’s needed to support the continued economic recovery and help get more SMEs back to business.

The Scheme can help these businesses access credit for cashflow, capital assets and projects related to, responding to, or recovering from the impacts of Covid-19 and provides participating lenders access to a Government-backed guarantee of up to 80 per cent of the loan’s default risk.

While it was launched back in April last year, the Scheme had originally only been available to the banks. The recent extension of the BFGS to Prospa and other fintech lenders is an important recognition of the growing role our sector plays in distributing essential working and growth capital to small businesses and our inclusion will mean greater access to funding for SMEs across New Zealand.

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Improving access to capital for SMEs

With the economic recovery underway, SMEs are increasingly looking for capital to hire, expand and invest in their future.

After putting off larger investments during the height of the pandemic (when the Scheme was first introduced), demand is returning and SMEs across most sectors are feeling more confident about their recovery.

Yet, historically these businesses have been underserved by banks and traditional lenders and many continue to find it difficult to access the funding they need to move forward.

A recent study commissioned by Prospa and conducted by YouGov showed that 57 per cent of Kiwi small business owners believe it’s getting harder to access funding from banks and traditional lenders. For younger businesses operating less than five years, this figure was as high as 70 per cent.

The same research also showed that of those small business owners who have tried to access funding, more than half (55 per cent) have missed out on opportunities to grow their business, because they couldn’t access funding when they needed it.

Beyond this, the study highlighted almost seven in ten (69 per cent) small businesses have used personal finances for business purposes. Of which, two in three (65 per cent) have tapped into personal savings and nearly four in ten (39 per cent) have used personal credit cards. Almost a quarter (24 per cent) have borrowed from family and friends and 21 per cent have drawn down on a mortgage.

When businesses can’t access the capital they need, they can remain in a state of limbo, and in some cases, even go backwards. Or, as the study reveals, they can fall into the potential traps of blurring business and personal finances, which can add additional emotional stress.

Fintechs like Prospa are designed to help solve these small business paint points. We create, build, and utilise cloud-based, data rich and API-enabled technologies to deliver seamless customer experiences, a fast credit decision and cut out the red tape.

We understand how to assess small business credit risk efficiently, and this enables us to lend to a wider range of SMEs who might find it challenging to obtain funding from a traditional bank.

Promoting competition, innovation, and better borrower outcomes

The inclusion of fintechs in the BFGS is positive recognition that the sector provides viable alternatives to the big banks, and will promote competition, encourage innovation, and deliver better outcomes for small businesses.

In comparison to markets around the world, the fintech sector is still relatively nascent in New Zealand, although awareness and consideration amongst SMEs is growing. That said, many SMEs still don’t realise they have viable alternatives…