14/01/2020
For something that happens every year, the end of financial year (EOFY) period has a rare power to catch small business owners by surprise.
But getting ahead of the key tax year dates that NZ small business owners need to know will do more than just reduce your stress – it can potentially save you money as well.
NZ’s financial year period
In New Zealand, the financial year, or tax year, is from 1 April to 31 March.
“The majority of businesses have this and it is known as the ‘standard’,” explains Geoffrey Hughes, Director at Hughes Judd Accounting.
“You can apply to change from the usual financial year to a ‘non-standard’, which will be considered on a merit basis. For example, many farming and agricultural businesses have different tax dates due to the seasonal nature of their business.”
Too many businesses leave it too late
Hughes says his business is often approached by new clients who are being followed up by Inland Revenue (IRD).
“The consequences, apart from IRD financial penalties, is possible loss of extended filing times going forward and an unexpected tax bill,” he says.
Stuart Ruddell, Director at JBM & Associates Limited, says the number one reason new clients approach his business is that they’ve left EOFY tax obligations too late.
The financial penalties of ignoring tax obligations
Inland Revenue currently charges $50 or $250 anytime you file a tax return late, depending on your circumstances, says Ruddell.
“On top of that, if you’re late filing the return you will be late for payment,” he explains.
“This then adds on Use of Money Interest of 8.35% (per annum), but you also get late payment penalties, which could be 5% (per annum) of the due amount during the first month and then 1% (per annum) of the tax due every month thereafter.”
Meanwhile, Hughes says, if you’re going to be late you should contact IRD prior to your tax deadline.
Of course, it’s better to be on time than it is to ask for forgiveness for being late, so make sure you mark the above key EOFY tax year dates in your calendar.
If you need some extra funds to grow your business in the new financial year or to get on top of your tax payments, talk to Prospa about how we could help meet your business finance needs.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
22/10/2019
Small business owners often use their own money or personal finance to grow their operation. Business funding, however, can be a more attractive alternative – for many reasons.
When you launch your own small business, your business and personal lives can easily become intertwined, as well as your finances. If additional funds are needed, small business owners often take out personal finance rather than business finance, as it may seem easier to access. But this is not always the case, with new alternative lenders providing fast and easy business finance solutions.
The risks of putting personal finance into your business
Accessing personal finance to fund your business can be fraught with danger.
“The biggest risk of injecting personal finance into your business is that you’re not going to derive any income, and you’re not going to be able to pay yourself back,” says Melissa Bailey, head of operations at Kiwitax, which has been working with small businesses in New Zealand for over 13 years.
“If you’ve obtained personal debt to be able to inject the business with the funds, then if the business isn’t going to derive an income to be able to service that personal debt, then you’ll be personally liable for that debt.”
Keeping your business finances separate
Ideally, says Bailey, any debt a business takes on should be in the name of the business, rather than personal debt in the name of you as an individual.
“It’s always best to have the separate entity and keep the finances separate,” she says. “If you’ve got a company, trust or partnership, then it would be best to have that finance under the name of that entity. It’s always tidier to have separate entities with their own separate liabilities.”
As well as being tidier and easier to manage at tax time, a good history of repaying debt can add value to a business in the longer term, as you’re building a strong credit history.
“If you have had finance and you have kept up with the repayments, then the creditworthiness of your business will increase,” Bailey says.
Taking on good debt
The word debt usually has negative connotations. However, Bailey explains it’s important to understand the difference between good debt and bad debt.
“Business is all about generating income,” she says. “Often you need to purchase assets, and the aim is to generate or derive a greater income from those assets directly. Or you may need to purchase stock in order to generate revenue,” she says.
“People don’t often have a big chunk of funds sitting aside to buy assets, and it’s not always a good idea to use that money in the bank account to pay for an asset anyway, because an asset is not claimable in the year in which you purchase it due to asset depreciation rules.
“Finance is really good for enabling the business to get assets from which to derive income – that’s good debt, it’s income-producing. That’s a real plus about finance.
“It’s the ability to buy assets without affecting your liquidity.”
Taking out business finance can also be tax-efficient, says Bailey, in that interest can be claimed as a deduction for the business.
“Any finance is, of course, going to generate interest charges,” she says. “However, all of those interest charges are claimable in the entity.”
If you’re looking to expand your business, buy new equipment or simply manage your cash flow during a quiet period, find out how a Prospa Small Business Loan could help. Get in touch on 0800 005 797 to discuss your options or find out more.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
08/10/2019
Insurance. It’s not a word that immediately fills you with excitement. However, it’s an essential for many business owners as they seek to protect what they’ve built. After all, it could just take one criminal act, one accident, one mistake or one natural disaster to wipe all that hard work out in an instant.
Here’s what you need to know about small business insurance:
Why small businesses should seriously consider insurance
“Insurance is important for small businesses because the cost of something going wrong can be the difference between surviving and bankruptcy,” says Tim Grafton, CEO of the Insurance Council of New Zealand.
“Small businesses tend to run on leaner margins, so when something unexpected happens, there tends to be less capacity to absorb the cost.”
In New Zealand, there are no mandatory insurances, but Grafton says, “We recommend small businesses get commercial property insurance and business interruption cover at a minimum, as well as either public liability insurance or professional indemnity insurance, depending on the type of business in operation. Anyone operating digitally should also look into cyber cover.”
What are the main types of insurance for small businesses?
1. Commercial property insurance
If you own or rent a home, you’ll no doubt be familiar with home and contents insurance – commercial property insurance is a similar proposition, it’s just for your business. It can insure your building from damage from theft and fire, and many insurers also cover some natural disasters – just make sure you know what it is you’re covered for. If you have business premises, or you keep any business belongings in a workspace, this is something worth considering.
2. Business interruption insurance
What would happen if you arrived at your restaurant or retail store one morning to discover the premises flooded from the units upstairs? You can’t open, you’ll lose takings, and you still have the staff to pay. Business interruption insurance could compensate for some of those losses, and help you get back on your feet.
3. Public liability insurance
If you welcome customers onto your business property, or you’re working at a client’s site, public liability is an insurance you may need. It can protect you for incidents such as accidental damage to a client’s property, an injury suffered in your store or you inadvertently make someone ill.
4. Professional indemnity insurance
If you’re in the business of giving advice, or your work could possibly cause consequential damage for your client and they make a claim against you, professional indemnity insurance can cover you.
5. Cyber cover
If any part of your business is conducted online, cyber insurance is worth a thought. It can protect you from losses or claims arising from online risks, such as being hacked, loss of data or being held to ransom.
Insuring your future
As a small business owner, it’s vitally important to at least know what your risks are.
“By insuring your assets and covering yourself for business interruption and liability, you’re building your business’s resilience and ensuring it can continue operating into the future,” says Grafton.
“It’s worthwhile meeting with a broker as they can determine what cover a small business may need for its own circumstances and help find or tailor a policy just for that.”
Grafton also warns people operating their small business from home to not assume your home and contents insurance will be sufficient in the event of something going wrong.
“Anyone running a business out of their home may not be covered by their standard house and contents insurance, especially if they haven’t told their insurer that they’re working from their property,” he says. “We recommend calling your insurer to discuss your options and make sure you’re covered.”
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
10/09/2019
Healthy cash flow means so much more than your bank balance’s bottom-line at the end of the week. It’s a small business’s ability to cover expenses, pay back debt and plan for the future.
These nine crucial steps will help put you on a path to cash flow success.
1. Budget well
A solid budget is the cornerstone of healthy business cash flow. Without it, you’re likely to miss any warning signs of problems on the horizon. So, schedule time to build a robust financial plan, including forecasting your revenue and expenses. Then factor in savings for future growth – you’ll also be well placed for seasonal business cycles, one-off costs and any unforeseen issues that come your way.
2. Spend wisely
You’re the boss. So, you call the shots when it comes to purchases, right? That means reining in the urge to spend big on impulse buys and seriously think through the pros and cons of every dollar spent. For example, a set of ergonomic office chairs might be advertised for a bargain price, but will they ultimately improve your bottom-line? If the answer is no, think twice about opening the purse strings.
3. Keep personal and business separate
Are your personal and business finances wrapped up together? If the answer is yes, you’re not alone. Historically, many small businesses have only been able to access funding through personal mortgages, loans or credit cards.
But the finance landscape has changed in New Zealand with alternative lenders now enabling businesses easy access to capital. And in order to have a strong grasp on your business’s cash flow and financial health, it’s important to keep your personal and business finances separate.
4. Be proactive
Stay on top of all your transactions, and keep in mind that most suppliers will be open to working with you on a payment plan to help pace your expenses. Burying your head in the sand when it comes to cash flow issues caused by overdue taxes, missed loan repayments or unforeseen bills is never the answer. A small business loan might be able to help bridge any gaps.
5. Chase invoices
Sounds simple, but we know finding the time to chase invoices is hard to come by. That’s where an online accounting system is worth its weight in gold, thanks to its ability to schedule reminders for overdue invoices weekly, fortnightly or monthly.
6. Cut back on stock
Holding onto old stock can suck the lifeblood out of any business. But there are ways you can shift it, while still earning some money. Consider offering customers a discount on bulk orders, host a stocktake sale or find out if stock that is simply unusable can be written off. And remember, clearing stock means freeing up space, which could lead to savings on extra storage.
7. Keep it lean
If you’ve been running your business for a while, you might have forgotten what you signed up for in terms of daily utilities, equipment hire or rent. Remind yourself. Speak to your accountant and see where you might be able to make some savings when it comes to your ongoing costs. Do you really need an office this size? After moving your business online, do you still require a shopfront? Keeping your overheads low is a great way to help keep you in the black.
8. Modernise payment systems
Make paying easy and convenient for your customer, otherwise you run the risk of losing the purchase or delaying payment. You can do this by clearly outlining links to payment options, including a credit card payment method seamlessly linked with your accounting system, and issue invoices online.
9. Limit low-profit products
Offering some products or services that generate little (or no) profit is a common tactic for most businesses, with such items known as a ‘loss leader’. Sure, they can help to secure new customers, but they do come at a price.
The key is to find the right balance. Check that the product’s price balances out your costs, taking wages, supplies and stock into consideration. And keep a close eye on things, making sure that those products that do come with a negative margin make up for it by generating ongoing interest from customers who turn into profit-makers.
Most small businesses experience cash flow highs and lows throughout the year. If you have cash flow concerns, contact Prospa to find out how a small business loan may be able to help.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
27/08/2019
For the vast majority of small businesses, being able to access cash at the right time is critical to keep your business going and growing.
A small business loan is one way to access that cash. Follow these tips to ensure you’re putting your best business foot forward when it comes to getting the most out of your small business loan.
Manage your cash flow carefully
Cash flow is important to the success of any small business – this you know. So it pays to keep it front of mind in the good times, and the bad, especially when you have loan repayments to consider. Keep a close eye on it by:
- Issuing invoices on time – the earlier you invoice, the earlier you’ll get paid.
- Regularly updating all other accounting and reporting – this will ensure you’ll notice any issues sooner and have them fixed faster.
- Building a cash reserve, if possible – it’s always good to have something to fall back on should the unexpected happen. It will also stand you in good stead during seasonal slumps.
- Projecting your cash flow well in advance – a cash flow calculator tool will be your best friend in this.
Get ahead of the game at peak times
So, business is booming? Great news. And while it may be tempting to celebrate, now’s the ideal time to consider paying more towards your loan. After all, it’s a move that will save you a significant sum of money down the track.
Let’s take Alison, for example. She’s a restaurant owner, has a $50,000 small business loan that she’s paying off at a rate of $600/week over 1 year and 9 months. Her business is doing well and she could pay more, but she’s just cruising at the agreed rate.
Alex, a mobile handyman, has a $50,000 business loan that he’s paying off at a rate of $600/week over 1 year and 9 months. His business is booming and he decides to add $200 to his repayments. This saves him $1,000 and he pays the loan off 5 months early.
Note: These are examples only and general in nature.
Keep a strong credit score
Good credit makes life much easier for a small business owner. Having a great credit report will open up more options when it comes to accessing finance, and has the potential to save you money in repayments.
Build and maintain a good credit score by:
- Scheduling reminders to ensure bills are paid on time.
- Limiting repayments by consolidating your credit cards.
- Keeping a close eye on your credit cards by not hitting the limit.
- Going over credit card bills with a fine-tooth comb so you can address any errors.
If your business is ready to take the next step, talk to Prospa today on 0800 005 797 or apply online for a small business loan.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisers. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
30/07/2019
From new premises to new technology, small businesses are presented with opportunities all the time, and each has to be considered on its merits. If you’ve done your research and believe the idea’s got legs, but need finance to fund it, a small business loan could be the answer.
But first, here are six questions to ask yourself before taking on finance.
What’s the small business loan for?
While your business is something you’re likely emotionally invested in, it’s vital to remain objective about any opportunity that emerges. It is business after all. So before deciding whether a small business loan is a good option, be crystal clear on what you’re intending on using the money for and what positive impact it will have on your business.
How much finance do you need?
If your financial projections suggest your business will benefit from a cash injection, then the next step is to work out how much you’ll need. Remember to factor in any costs associated with what you’re using the loan for. For example, if you intend to buy a new vehicle or a new piece of equipment, it’s going to need insurance.
What’s your current position?
It’s one thing to know how much is in the bank today – it’s another to have an accurate picture of what’s coming up. Make sure your cash flow forecast is on point, all knowns are accounted for, and you are confident you can make the regular repayments, even in quiet periods.
How’s your credit history?
If you’re thinking about applying for a small business loan, it’s a good idea to check your credit report, so you can correct any mistakes, as this will impact your loan application. There are three credit reporting companies in New Zealand: Centrix, illion and Equifax. The New Zealand Government provides a handy guide on the best way to check your credit report.
Is there other funding that could help?
Is a small business loan definitely the right option? For example, if you’re a Kiwi business looking at a loan for R&D, you could be eligible for business growth funding through Callaghan Innovation – New Zealand’s innovation agency. Worth a look!
Make it easy to get a ‘yes’
At Prospa, it’s our mission to keep small business moving, providing small business loans of $5,000 to $150,000. To apply, all you need is identification (i.e. a valid Driver’s Licence) and some information about your business (including your trading time, ownership details and an active New Zealand Business Number). Note: to qualify for a Prospa Small Business Loan, you need to have been trading for at least six months, with a minimum monthly turnover of $6,000.
It takes 10 minutes to fill in the online form and we can often provide a response within one hour, as long as you’ve applied during standard business hours and allow us to use the advanced bank verification system link to instantly verify your bank information online.
So, the clearer the information you provide to us about your business, the easier it is for us to say ‘yes’.
Discover how a small business loan could help your business grow. Find out more or contact us on 0800 005 797.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
27/06/2019
Looking for a small business loan to grow your business? Have you considered an alternative lender?
There are various stages in the life of a business when additional funds may be needed to help the business grow – whether it’s to invest in new equipment or machinery, rent new and larger premises or simply to assist with cash flow during a quiet period.
But the prospect of obtaining finance through traditional means can be daunting – countless hours on the phone and in meetings with the bank and reams of paperwork to complete. The time commitment alone can put you off.
That’s where alternative lenders step in – often providing an intuitive online application process, with minimal paperwork and a fast approval process. As an alternative lender, Prospa’s application process indeed involves no paperwork and there’s the potential to have funds – anything from $5000 to $150,000 – in your account within 24 hours.
Alternative lenders are agile
By primarily operating online, alternative lenders have flipped the traditional borrowing process on its head. This enables us to focus on speed, flexibility and personal service – it keeps us agile, making us an ideal match for the agile environment of small business.
What’s more, rather than focusing on the business owner’s personal assets, we kick-start the lending process by assessing a business’s overall health and growth potential.
Alternative lenders are fast
Alternative lenders typically offer a quick online application process. When working with Prospa, for example, you’ll typically receive a same day response and, if successful, the funds could be in your account in as little as 24 hours.
For loans up to $100,000, no asset security is required to access the money, however Prospa does require a personal guarantee. As long as you follow your loan obligations (as detailed in your loan contract document), asset security will never be required. For loans of over $100,000, Prospa generally takes a personal guarantee and security in the form of a charge over assets.
Alternative lenders understand you
Alternative lenders inherently understand the dynamics and pressures that come with running a small business – because they are one. That common ground means we have a deep understanding of your challenges and your goals.
The result? Better, faster outcomes, and more personal service.
If you’re looking to expand your business, buy new equipment or simply manage your cash flow during a quiet period, find out how Prospa can help. Get in touch with one of our small business lending specialists on 0800 005 797 to discuss your options or find out more.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
21/06/2019
Running a small business comes with many ups and downs, as well as many occasions that may require a bit more cash than you have at your fingertips.
Here are six scenarios where a small business loan may be just what you need to keep your small business moving.
1. You need more space
If your employees are using the table in the kitchen as a workstation, or your office is now doubling up as a stock room, you could probably do with a little more space. But just because you’re ready for expansion doesn’t mean you necessarily have the cash on hand to make it happen. Whether the answer is a refit, full-on renovation or even a move to new business premises, a small business loan could provide quick funds to expand the operation.
Remember to calculate the financial benefit when deciding whether to go ahead or not. For example, will the renovation or refit enable you to sell more stock or take on more clients? Or will it just make room for Molly the office dog’s bed? Speak to your financial advisor who can help you crunch the numbers.
2. You need more stock
Buying products that will enable you to provide a service and improve your offering is a crucial part of doing business. Every business needs an up-to-date inventory, and if you’re a seasonal business, you’ll want all your stock in place before peak sales periods. If your turnover is dependent on the stock you’re carrying, but you don’t have the capital to invest, then a small business loan could be worth considering to bridge the gap.
3. Opportunity knocks
Many opportunities emerge for small businesses, and knowing which ones to chase, and which ones to pass by, is a skill in itself. If you have completed your due diligence and believe an opportunity is worth grabbing, but you don’t have the cash flow on-hand to do so, a small business loan could be the answer. It provides a simple cash lump sum that puts business owners in control of how they respond to opportunities.
4. You need to recruit to grow
Small business owners often wear many hats, but sooner or later juggling your supply channel, bookkeeping, marketing, customer service and tea-making all by yourself can take its toll. Ultimately, if you’re going to grow your business, you will need time to give the operation the attention it deserves. Employing staff can free you up to do just that. If there’s a clear connection between the hiring decision and an increase in revenue, then a small business loan could make good business sense.
5. Your premises need a makeover
First impressions count a lot in business, and if you’re a cafe with shabby furniture, you may be losing customers based purely on your interiors. Alternatively, if you’re an office-based operation, your poor ergonomic set up may be negatively affecting your employees’ productivity and/or your ability to attract star candidates. A small business loan could help give your small business the face-lift it needs.
6. You need more customers
Build it and they will come? Not quite. You could have the best product and service in the world, but if no one knows about it, you’ll not sell a bean. An investment in marketing is critical to attract customers. A small business loan could help you fund a promotion or marketing campaign to acquire new customers.
If your business needs funds for opportunity, growth or cash flow support, get in touch with one of our small business lending specialists on 0800 005 797 to discuss your options, or find out more.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
26/11/2018
Four quick hacks for business owners when applying for a small business loan
Obtaining finance can be challenging for small business owners, especially as cash flow challenges are common when the business is in its early stages. If you’re a NZ small business owner and you need to access business finance, these four tips could get you closer to being approved, not declined.
1. Dig up your documents
Traditional lenders in New Zealand will demand all paperwork relevant to your business’s prospects of success and won’t begin to assess your application without it. These may include a business plan, competitor analysis and financial statements like P&L, cash flow forecast, revenue projections and much more.
Online NZ lenders like Prospa, however, go out of their way to make it easier for small businesses. Unlike traditional lenders, the entire loan application process is much simpler, and depending on the amount you want to borrow, fewer documents are required. And that means you can spend more time focusing on growth opportunities.
2. Check your credit score
Credit history is usually one of the most important factors for a traditional lender. NZ banks will obtain a copy of your credit report, so it’s crucial you examine yours before applying. Otherwise you may not understand what sort of negotiating platform you’re starting from.
Even if you think your record is clean, double-check it to ensure there are no inaccuracies or nasty surprises. You may not be aware that every time you apply for credit and a credit provider obtains a copy of your report, an enquiry is logged. Credit providers may take a negative view of multiple inquiries made in a short space of time, which may affect your ability to obtain credit (and indeed the interest rates you are offered).
You have the right to obtain your credit score and request a copy of your credit report to correct any wrong information. There are three credit reporting companies in New Zealand:
3. Master your business pitch
Obtaining business finance from a bank is essentially a pitch. You’ll probably need to sell yourself, your business and your plans for the future, while being both professional and passionate.
This can be daunting for those with little experience presenting or selling. It’s a good idea to rehearse and think of any possible questions or shortcomings that might be brought up. It also pays to be ready with evidence that can back up how you will overcome specific business finance issues. One way to do this is to prove your ROI or showcase your business growth in easy-to-read graphs and charts.
Fortunately, getting a small business loan from Prospa doesn’t require a pitch. Once you explain the intended use of funds, Prospa will see if you meet its lending criteria by determining if your business has the cash flow to support repayments.
4. Know your security
Traditional lenders often require the borrower to offer an asset as security upfront against the loan. This could be a property asset, or another asset like a vehicle or piece of equipment.
Before locking your home in as upfront security for a small business loan, you should always consult with those who will be most affected, like your family or business partner.
And if you aren’t comfortable locking your house in as upfront security under a business loan contract, then there are trusted online lenders that offer small business loans that don’t require upfront security to access the funds. This option may be more appropriate for you.
When opportunity knocks for NZ small businesses, there’s a range of new choices for raising funds. Prospa can help you access the funds to manage cash flow or take advantage of opportunities when they arise. Talk to our NZ small business lending team on 0800 005 797.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
09/10/2018
A new wave of lending is revolutionising the way small businesses in New Zealand access finance. Here are some of the game changers you need to know about.
Cash flow lending
Cash flow loans are usually short-term loans to help you maximise a business opportunity or manage a lumpy cash flow.
Alternative lenders like Prospa offer small business loans up to $100,000 with no security required, so you don’t have to put your family home on the line. Other positives include faster applications and less paperwork, cash-flow friendly repayments and transparency around the total amount to be repaid.
Keep in mind that not all lenders are created equal: some don’t offer a fixed upfront price, leaving owners susceptible to interest rate rises, while others may include hidden fees and charges. Look for a lender with specific expertise in small business, a reputable track record and great customer feedback.
Invoice finance
Invoice finance helps small businesses and tradies maintain cash flow when waiting for customers to pay. There are two types of invoice financing:
- Invoice factoring: Where you sell your invoices to a third party at a reduced cost in exchange for instant payment.
- Invoice finance: Where you use an invoice you have issued as security to get a loan.
Some invoice finance providers offer 100% of the invoice value in exchange for a small drawdown fee and an ongoing weekly interest rate. Invoice financing is a good tool to have in your kit if you often have to wait for payment after completing projects and purchasing materials. To use invoice finance you need to be the kind of business that issues invoices – like a professional services firm, rather than a cash-based business like a café.
Crowdfunding
Popular in the social and charitable space, crowdfunding has recently matured in the business arena, with platforms like Snowball Effect facilitating substantial amounts of private investment in New Zealand.
The most common crowdfunding model is based on rewards and incentives. A ‘backer’ pledges money to support your business or product idea in exchange for a discount on the new product or another reward. Rewards can be anything from a percentage of revenue to free products or the opportunity to help in the design process.
On the upside, business owners keep full ownership and clients are investors – providing direct access to market feedback. For investors, there is low risk for small amounts.
On the downside, some platforms are all or nothing, with no access to funds if the overall goal isn’t reached. Business owners need to commit time to promoting the campaign and dealing with backers, and still need to deliver on their promises if things don’t go to plan.
Crowdfunding is a form of equity funding – meaning you usually have to give up equity in the business, and is best suited to a start-up rather than an established business. It’s not a viable solution if you need help managing cash flow.
Venture capitalists and angel investors
If you need a large cash injection to start up or take your business to the next level, angel investors or venture capitalists could be good people to meet.
Angel investors
Angel investors are often business owners or high net worth individuals who see the potential in your business and want some involvement. They usually invest in industry sectors they’re familiar with and will want a targeted return on their investment. They may structure their involvement as a loan, or as equity, or a combination of both. Angel investors often come on board in the early stages of a business and contribute their experience and knowledge in addition to funding. It’s important to choose an investor who can add value and has the same vision for your business that you do.
In the technology sector, angel investment is having a big impact, particularly in Wellington.
Figures from this year show record levels of early-stage investment, with combined funding from New Zealand-based angel investors and domestic crowdfunding increasing by 35% to $112 million. Angel and crowdfunding investments into the tech sector have risen at an annual growth rate of 18% over the past four years.
Angel Association New Zealand is a great place to start if you’re looking for this type of investment in your small business.
Venture capitalists
Venture capitalists are investment companies or fund managers who provide cash in return for part-ownership of your business. They tend to look at larger businesses and differ from angel investors in that they typically want to invest larger amounts and have more comprehensive requirements.
VCs may not want to play an active role in the management of your business, instead taking a seat on your board. To find out more about venture capital opportunities in NZ, check out the NZVCA.
When opportunity knocks for small businesses, there’s a range of new choices for raising funds. Prospa can help you access the funds to manage cash flow or take advantage of opportunities when they arise. Talk to our team on 0800 005 797.
