Demand for business financing grows as businesses restock
Australian small businesses, much like businesses everywhere else in the world, have been struggling since the beginning of the pandemic. It started off with periods of lockdown that forced many small businesses to shut down. Then, as the country opened up periodically, there were other concerns.
These concerns ranged from consumer demands and employees resigning, to supply chain difficulties and, perhaps the most significant issue, small business financing. Small businesses needed cash in the pocket to cope with the various existential problems they were facing.
Over the 18 months since the summer of 2020, Australian small businesses have been on a lifeline named the SME Recovery Loan Scheme, a business loan guaranteed by the government, with repayments that begin 24 months after the business receives the funding and an interest rate capped at 7.5% yearly. It was initially set to expire at the end of 2020; this was pushed out to December 2021 and eventually extended until June 30, 2022.
At the same time that the government emergency financing scheme was established, private small business financing in Australia came to a halt. Prospa, one of Australia's most prominent business lenders, who also trade publicly under symbol PGL, had a 10% reduced loan origination volume in 2020 compared to 2019 and had negative EBITDA numbers as shown in their report.
As a whole – both ends of the business financing industries were gasping for air: Australian online business lenders were cautious of the end results of the pandemic and feared an unusually high percentage of defaults. As a result of this concern, they raised their minimum requirements, which made it extremely difficult to become eligible for small business financing.
Things have turned as of recent, as per this AFR interview with Prospa's CEO. Prospa CEO and co-founder Greg Moshal says that the omicron variant has not dampened demand for credit this time around. On the contrary, Moshal is seeing an increase in demand as more businesses look to restock before prices rise, with an unusually strong lending market in Australia and New Zealand leading up to Dec 2021.
In an inflationary world, restock timing makes a difference, and this is where online lenders in Australia have the edge over banks. While getting a business loan from a bank in Australia can take as long as 2-3 months, many Australian business lenders offer funding within 24h.
Moreover, Prospa is now working on improving its technology and compatibility with other software. This would mean that small business owners could view a dashboard of their inventory and available cash flow in one place and know when a small business loan is in order.
To find out more visit Small Business Loans here.