Small businesses, especially those in the first two years of trading, can often run into financial roadblocks. It may be that cashflow won’t cover wages one week, or it could be that a business opportunity arises, but due to lack of credit, it can’t be taken advantage of.

Traditional lenders – banks – are known for being wary of lending to small businesses. Types of lending include things like working capital, business credit cards, term loans, equipment leasing and letters of credit.

Banks generally require a substantial amount of paperwork and come with strict credit, cashflow and collateral requirements. The processing times for applications are also generally lengthy – and yet, that’s the opposite of what small businesses need. What they do need is agility to ensure they can keep the wheels of the business oiled without facing too many roadblocks.

Alternative lenders may be a better option for small businesses. Often they are set up specifically to meet the needs of small businesses and have a better understanding of how they need to be supported.

Managing Director of alternative lender Prospa, Adrienne Begbie says it’s understandable that business owners would turn to lenders they have been dealing with in their personal finances, but will find that lending criteria are very strict and the application process arduous.

Adrienne Begbie

“Our research has shown that after going through the lengthy application process, about a quarter of business owners are then declined. We also know that one out of two businesses has missed an opportunity to grow because they couldn’t access finance,” she says.

Prospa surveys show that Kiwi businesses are finding it harder to access funds because of increasing amounts of red tape. Alternative lenders design their products with these challenges in mind. It is simpler and faster, providing businesses with more operational flexibility so they can manage cash flow and finances in periods of heavy cash outgoings.

The technology they use can usually make assessments within 24 hours, and they offer things like fixed interest rates, providing certainty as far as budgeting is concerned. They also understand that minimal paperwork and simple online processes take the stress out of loan applications.

Prospa provides a small businesses loan for up to $500,000 that  can be accessed in as little as 24 hours, and comes with flexible repayment options over a fixed term of 36 months.

Prospa also provides a Line of Credit product which offers ongoing access to funds between $2000 and $150,000 that can be “dipped into” as needed. Interest only applies when funds are actually used by a business, and come with a renewable 24-month term, a  minimum repayment schedule, plus the option of making extra payments to pay the loan down faster.

“The Line of Credit product is the perfect solution for small businesses that want to cover unexpected cash flow gaps. What we’ve observed is that this ongoing access to funds is commonly used for things like paying staff, buying stock or managing late payments,” Begbie says.

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