High interest rates are no match for businesses in need of loans

High interest rates are no match for businesses in need of loans
Photo: Gripfast, BS

The Australian SME (Small and Medium Enterprise) market is being driven by financing from small business loans providers such as Prospa. This Australian lending company has been authorized with the following ABN business number 47154775667, and Australian credit license number 454782 to offer loans to small businesses.

The loan amounts available through Prospa range from $5,000 on the low end through $250,000 on the high-end.

The typical loan term lasts from as little as 3 months through 1 year, and Prospa fully supports unsecured loan offers. It’s relatively straightforward to qualify for a loan through Prospa. All that’s required are essential business details (annual revenue, address, years in operation) as well as the past 3 months’ bank statements, and other credentials.

Many more small businesses in Australia are turning to non-bank companies like Prospa to provide them with loans. The reason for this is the increasing complexity associated with being approved for bank loans. Ever since the global financial crisis 10 years ago, banks and traditional financial institutions have tightened the screws on who gets approved, and the qualifying criteria that need to be met. Many small businesses find banks to be rather hostile towards their needs and are choosing to rather go with companies like Prospa.

An alarming statistic suggests that an estimated 60% of SME loan applications are summarily dismissed by banks, citing one of two reasons: misrepresentation of the business entity, or high-risk activity. Small businesses face high rates of rejection from banks and other mainstream financial institutions, and this has a crippling effect on the private sector. Rather than forfeiting their businesses, they are turning to alternative sources of financing to stay afloat.

What are some of the pitfalls of non-bank loans?

The biggest bugbear with non-bank entities like Prospa is interest rates. These companies feature variable interest rates that are calculated in a decimal format, not in an interest percentage. In the land down under, Prospa features prominently with small businesses and was the winner of the Leading Innovator of the Year in 2017, and it generated a 97% positive opinions  from users across the board.

These accolades are hard to ignore, despite the higher interest rates that this company charges. To date, Prospa has funded SMEs to the tune of over $500 million (April 6, 2018), and it typically provides these funds within 2 days. The company is no slouch when it comes to backers either. It is funded by multinational venture capitalists including Air Tree Ventures, The Carlyle Group, Partners for Growth, Ironbridge Capital and Entrée Capital.

Banks tend to require substantial collateral with large loans; that’s not the case with Prospa. This loan enterprise provides an easy solution for loans up to $100,000, but if loan amounts are greater than $100,000, a charge of assets is required. Luckily, early payment of loans is not subject to penalties, and interest is not compounded. On the Prospa website, the company has garnered a 9.8 trust score and an overall customer satisfaction rating of 97%. TrustPilot features over 1,553 reviews and a 5-star rating for their services.

The benefit of applying to this company is that the application process can be completed in just 10 minutes, and the time to funding is 24 hours. The fees are worked into what is known as a factor weight. It depends on the type of industry the small businesses is involved in, how much cash flow the company has, and how long the business is been operational.

When asset-based borrowing is used, Prospa has temporary ownership of the asset until the small business owner has repaid the obligation. These needn’t be business assets, they can be family homes, equipment, vehicles, machinery.

Naturally, businesses that are in bad shape will likely be paying higher rates of interest than businesses with healthy cash flow and substantial assets. Nonetheless, this doesn’t seem to perturb business owners who would rather see their doors remain open at a higher interest rate, than risk being shut down by bank denials on loans.