Excluding smaller lenders from the Government's Business Finance Guarantee Scheme will create financial exclusion for a large group of small businesses, a small business lender has warned.
ASX-listed Prospa which operates in New Zealand issued the call to the New Zealand Government as it declared a net loss after tax of A$24.9 million for the full year to June 30.
The business saw a big impact under the first Covid-19 lockdown in New Zealand, with up to 45 per cent of its loans requiring support through either a full or part deferral.
As of July 31 that had fallen back to 14.3 per cent. Between July 1 to August 20 it provided deferrals for another 14 borrowers in New Zealand as a result of the second Auckland lockdown.
Co-founder and chief executive Greg Moshal said its full deferral rates had been similar to the banks but whereas in Australia small business lenders had received support from the Government, that had not been the case in New Zealand where the BFGS is restricted to the banks.
Announced in March, the $6.25 billion BFGS scheme was designed to encourage business lending, with the Government underwriting 80 per cent of the loan through a deal with the banks.
So far only around $150m had been lent to 780 customers, just over 2 per cent of the limit of the scheme.
Last week the Government announced the size of the loans available under the Business Finance Guarantee Scheme would be raised from up to $500,000 to $5 million to boost interest in it, the terms of the loans would be increased from three to five years, larger businesses will be able to draw the loans, and the funds can be used for a wider range of purposes.
It is the second time the scheme has been tweaked.
Adrienne Church, Prospa New Zealand general manager, said the banks in New Zealand were not going to be able or want to approve every small business that needs funding.
"If we are unable to access the scheme, these customers won't get the benefit of lower rates that reflect the application of the scheme's guarantee.
"Excluding smaller lenders will therefore create financial exclusion for a large group of small businesses and create a bigger gap between SMEs the banks will lend to, and those they won't."
Prospa saw its new lending in New Zealand shrink to virtually nothing in April and May before beginning to bounce back in June and then more strongly in July. But loan originations had yet to return to pre-Covid levels.
Church said historically around 65 per cent of its lending was to Auckland small businesses but it was seeing more demand out of Christchurch, the agriculture sector and food production.
Moshal said it couldn't predict when loan demand would bounce back but for them it was more about being ready.
"We are certainly able to help customers. It is really a question of how quickly demand can return. My personal view is that our funds are predominantly used for growth capital.
"Certainly there is somewhat of a holding pattern at the moment but we feel some are being really proactive and using this time to renovate."
He said customers had bunkered down a bit but many would need to invest once they came out the other side of this.
"We see great demand that will come. Both in NZ and Australia there is still going to be a need for capital. It's not going to go away."
Total revenue across the business was up 4.2 per cent to A$142.1m. Its earnings before interest tax, depreciation and amortisation was down A$19.5m.
The business booked a loan impairment of A$52.9m up from A$30.6m. The impairment included an A$18m forward-looking provision to take into account the impact of Covid-19.