SMEs trying out alternative funding options to stay afloat

81% of SMEs are concerned about getting the funding they need to keep operating

SMEs trying out alternative funding options to stay afloat

Small and medium-sized enterprises are turning towards alternative funding methods to sustain their cash flow amid recent economic challenges, a new survey shows.

About four out of 10 businesses are trying to secure funds to stay afloat, according to a study from the RFI New Zealand SME Banking Council, commissioned by Prospa.

The survey, conducted between November and December, saw the participation of 500 decision makers in SMEs, which are those with a global annual revenue below $14 million.

SMEs also have reasons besides cash flow to seek funding, the study found.

Other reasons why SMEs are applying for finance:

  • Purchasing inventory (37%)
  • Buying equipment (37%)
  • Paying invoices (31%)
  • Investing in business expansion (27%)

Eighty-one per cent of businesses said they are concerned about their ability to get the funds they need. Thus, many of them (24%) are working on cost-reduction by scaling back operations and 22% are seeking professional advice.

Meanwhile, others (20%) are negotiating with their clients for earlier payments.

The research also found that SMEs are less inclined to use business banking products this year compared to 2023. This is because SMEs are looking for competitive interest rates, greater flexibility on repayments, and the convenience of online banking, which are not always available for small businesses.

In business lending, one out of five SMEs said they reduced their borrowing, while 15% are negotiating lending terms with their banks.

However, 10% of the SMEs said they will explore alternative, non-bank providers of business loans and financing options. The research also found that the desire for such financing options increases significantly with the increase of an SME’s annual turnover.

According to the Prospa report, 35% of businesses are not aware of alternative lenders. Meanwhile, 37% of the SMEs that are aware consider taking out a business loan from alternative lenders in 2024.

Here are SMEs’ main reasons for seeking finance from alternative lenders:

  • Lower fees / charges (36% of the respondents said)
  • Faster access to funds (35%)
  • More flexibility (27%)
  • Quicker approval of products (25%)

Prospa said SMEs are often not accessing funds from alternative lenders because of lack of awareness and education.

Prospa Managing Director Adrienne Begbie said now is the time for advisers to engage with their clients about reducing business financial risks and lower their exposure in the short and long terms.

“Businesses often need advice to navigate such times and many simply don’t know about non-bank lenders,” Begbie said.

She noted that Prospa has seen well-informed businesses that can adapt to economic challenges, adding that it is all about SMEs knowing what is available and making smart decisions.