Small business lending from major banks has been dropping substantially – but advisers can fill the void
Small businesses are crying out for finance, banks are increasingly reluctant to help them. For advisers who speak to clients every day, tapping into the opportunity can be as simple as asking “how is business going?”
Adrienne Begbie (pictured), managing director at Prospa New Zealand said advisers are in a great position to bridge the lending gap.
“We get more new advisers working with us every day, and 55-60% of our business comes through that channel,” Begbie told NZ Adviser. “Business owners are very passionate about what they do. If you have a business owner in front of you, it’s about opening the conversation on what’s going on for them.”
Why banks have been walking away
The lending landscape has always been tough for small businesses, but it has not been getting any better. Recent data analysis from interest.co.nz revealed that business lending from banks has been slowing substantially over the last 12 years – largely as a result of Basel III rules, which require banks to hold more capital for business lending compared to home loans.
Begbie said that mortgage lending is largely perceived to be safer, particularly when banks can lend against a security like a property. The reluctance of the main banks to lend to businesses became increasingly apparent during COVID-19, where the government introduced its Business Finance Guarantee Scheme.
“The government was offering 80% coverage of any risk, and this was given only to the main banks to start with,” Begbie said.
“The specialist lenders started to lobby to get access. Prospa did get access and we got it running within weeks, because that’s what we do – we lend to small businesses, and we are able to push things out quickly. However, the main banks had the guarantee, but they hardly even managed to get it out at that time.”
The big banks haven't completely abandoned the space. BNZ recently launched its Merchant Flexi Loan, offering up to $50,000 with no interest charges and a one-off flat fee, with approval in as little as three minutes. Kiwibank's Fast Capital allows businesses to apply for borrowing from $5,000 to $1 million, and also offers decisions within minutes.
However, Begbie noted that even these products are limited in scope.
“BNZ’s offering was limited to existing customers,” she said. “These things are promising, and it's good for small businesses to have access to multiple lending products. But it's not the core of what banks want to do.”
The adviser advantage
For advisers, this ‘market void’ can give them a significant competitive edge. They’re already having in-depth financial conversations about their biggest assets - their homes - and so discussing business needs is a natural transition.
Begbie says that often, these conversations arise completely spontaneously, and not as a result of a rejected credit application from a bank.
“We get a lot of line of credit applications from advisers who might have started out talking to clients about their mortgage,” Begbie says.
“It might be that the client needs to invest in more staff, into marketing, or buy extra stock. Advisers can then refer that client to us, and we can look at a small business loan or a line of credit. Often, that functions as a ‘just in case’. They might take $100,000 and only pay interest on what they draw from, but it’s there just in case they need it.”
Overall, small businesses are heading into the coming months with a sense of cautious optimism. Begbie highlights that the OCR cuts have tipped approximately $3 billion back into the economy through smaller mortgage repayments, and more businesses are looking to refinance or take out funding.
With main banks still reluctant and more advisers looking towards specialist lenders for solutions, it’s a conversation worth having.
