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.
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 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.
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 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 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.
New Zealand’s financial services sector is alive with unprecedented disruption that’s changing the business landscape. If that sounds a little dramatic (and exciting), it is.
Driven by a wave of tech finance startups offering endlessly smart solutions, mixed with rapidly emerging technologies such as AI and a hungry consumer appetite for intuitive online services, it’s more a case of what isn’t fintech.
Fintech has been around for a while, and you’re probably already using it – like Xero and PayPal taking the hassle out of paying, receiving and tracking money. Is anyone still using a spreadsheet?!
Fintech is so popular because it’s displacing old ways of doing things with easier – and more productive – solutions. According to Forbes, US$27.4 billion worldwide poured into fintech startups in 2017, up 18% from 2016.
So how are we going in New Zealand? NZ’s FinTech Survey 2017, published by PwC, noted that 15% of global annual turnover in financial services is devoted to fintech, but in New Zealand, that figure sits at just 6%.
Local businesses and consumers are being readied for the digital finance revolution, with the survey also finding that 91% of the financial services respondents expect that they will partner with a fintech in the next three to five years.
The local fintech industry is represented by FinTechNZ, with representatives from the tech and finance industries, entrepreneurs, venture capitalists, banks and government. Everyone is in – and for good reason.
It’s all pointing to the rapid adoption of a new norm, where people expect to be able to manage all their business – and their finances – online.
And it’s not just about managing money, but sourcing and securing funds. Fintech’s alternative banking options are making it easier for anyone with a good idea and a sound starting point to grow much faster than with the constraints of traditional lending.
How fintech is changing the landscape for small businesses
Here are some of the main ways fintech is helping Kiwi businesses grow.
1. Cloud accounting
Cloud-based software like Xero has quickly become the norm for SMEs, accountants and advisors.
Log on anytime and see exactly what’s going on in your business. And when you need a cash injection for a growth spurt, it’s easier to show lenders or investors what’s happening within your accounts.
2. Global payments
It used to be a pain to accept payments from someone in another country, but thanks to services like PayPal small businesses can sell worldwide with fewer hassles and a much bigger market.
3. Easier and faster access to money
It’s not uncommon for business owners here in New Zealand to borrow from family and friends to avoid the often-arduous process of traditional loan applications via the banks. As a result, the lines between personal and business finance can often become blurred.
Traditional lenders also usually look for security to borrow against, along with years’ worth of financial data, which of course you may not have from the early days.
We understand that small businesses need finance to run and have made accessing money far easier with funding available in 24 hours.
4. Online lending for small businesses
Prospa shares the principles that Kiwis value in their banks – such as building personal relationships, clear vision and honesty – and applied them to products and services that the small business community has told us they need. And we’ve done this all online so our customers can spend less time on paperwork and more time working on their business.
Prospa has funded over $540m (AUD$500m) in loans and helped over 12,000 small business owners. Find out how your business could thrive with a cash flow boost from Prospa.