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NZ’s SME lending – best in class leading the way

New Zealand’s small-to-medium-scale enterprises (SMEs) can count themselves lucky given the country currently has one of the best models when it comes to extending financing for small businesses.

World Bank Statistics show that SMEs around the world continue to face difficulty getting financing. There are about 400 million SMES in emerging markets (excluding the OECD countries) but only about 20% of them have any form of loans or overdraft.

In Asia, 70% of the SMEs surveyed said they were unable to access loans because they could not provide any form of property as security, while 20% would not even consider applying to banks for credit. New Zealand financial institutions are more proactive in helping to raise financing for SMEs, for example invoice-based financing and factoring among others. The rest of the world is still focused on traditional asset-base lending.

Earlier this year, Lock Finance chief executive, Simon Thompson was asked by the World Bank to speak at their conference on Small-to-Medium-Enterprise Finance held at Rio de Janeiro, Brazil. “The World Bank is currently leading a major programme to improve finance for SMEs by pushing for legislative changes,” says Thompson. “They are also educating the banking community to accept a more diverse range of SME assets (such as plant, inventory and account receivables) beyond traditional security such as property-based assets.”

According to Thompson, there remains a huge gap in the SME finance market. (See tables below) because few SMEs have property assets, yet banks and lenders want property security. “New Zealand leads the way in this area and we are now seen as a ‘best practice’ country. We have a very good legal framework (based on our Personal Property Securities Act), a well-used online security registry system and active market lenders, such as Lock Finance, who do not need property security when lending to the SME sector.”

Thompson says that New Zealand tends to take its lending framework for granted, “But I can assure you there is considerable international interest in the lending model we use because, simply put, we Kiwis do it very well.”

Table 1: Mismatched needs

With the support and encouragement of the Lock Finance shareholders, Thompson says he has been able to provide expertise to the World Bank on training projects in China and Cambodia as well as at the Rio de Janerio conference.

He found the trip a fascinating experience on both a personal and professional level. “Away from the conference, I found some time to explore Rio de Janerio and discovered that it is a truly magnificent city and I recommend you visit if you can, especially to catch the Carnivale. It starts at about 10.30pm and goes till 6am – it is spectacular!”