Should borrowers mix personal and business lending?

“A lot of people who can’t get funding either put it on to their house or a personal credit card”

Should borrowers mix personal and business lending?

New Zealand’s small businesses are looking for opportunities to expand their services and grow, but Prospa’s Adrienne Church said they often end up mixing personal lending with business lending in the process - something which isn’t ideal for borrowers.

Church said that although demand for cash was low early last year, it has since skyrocketed, with many businesses looking to expand or redesign. With business lending becoming harder to come by, many borrowers are taking out personal loans or putting their family homes on the line in order to fund their growth plans.

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“We’ve had some amazing stories recently where customers were trying to grow and they’ve actually had some opportunities coming out of COVID-19,” Church commented.

“Some are also trying to do things like install hand sanitiser in their premises, or expand into a new location.”

“When we offer lending, we don’t do things like mix their personal house with their business by asking for it as security - a lot of people who can’t get funding either put it on to their house, or they’ll put it on to a personal credit card,” she explained.

“That’s mixing different types of lending, when what you really need to be getting is business lending. We’re are committed to lending responsibly and our products are fit for purpose, designed specifically for small business. We use our proprietary credit decision engine to assess credit risk quickly and efficiently and we don’t require asset security upfront to access Prospa funding up to $100,000.”

Prospa saw a significant spike in loan originations over the last quarter, and Church said this was due to a strong demand for capital in line with economic activity. She said borrowers were also becoming used to lenders’ digital models, with the lockdowns having significantly increased people’s comfort levels around transacting online.

“We had a period of reduced business throughout lockdown in April last year, which was to be expected - people were not trading, and they weren’t growing,” Church said.

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“But since then, we saw a 200% increase in loan originations in Q2 on the prior quarter, and we saw a 25% increase year on year - and that’s even through the COVID-19 period.”

“The category of non-bank and alternative lenders in general is growing in New Zealand, as are digital models like ours,” she added.

“People are getting more comfortable with them, partly because they’ve had to be - everyone has been using Zoom, doing online banking and doing their shopping online. All of those capabilities are there and that just creates comfort, so people are becoming more and more comfortable with a model like the one we use.”

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