SMEs adapt financial strategies amid economic pressures

The latest Prospa-commissioned RFI Global research reveals that SMEs are increasingly concerned about economic and regulatory factors (35%), up from 23% a year ago. Similarly, concerns about business demand and cashflow have surged to 27%, a significant increase from 15% in May 2023. 

Key financial challenges include rising supply chain costs (68%), increased labour expenses (62%), and anticipated decreases in turnover (55%) over the next 12 months. Notably, staffing, recruitment, and payroll represent the largest expense for 38% of SMEs, while 36% cite government payments and taxes as a major financial burden.

Response to financial strain

A staggering 51% of SMEs are concerned about accessing the funds they need. In response to these economic pressures, SMEs are adjusting their financial management strategies to maintain their financial health.

To combat rising costs, 42% of businesses are increasing their prices, while 19% are using personal funds to cover business expenses, particularly among smaller businesses with annual revenues below $100K. To further manage challenges, 21% are reducing staff hours and 16% are negotiating faster payments from clients.

Prospa NZ managing director Adrienne Begbie says: “We are seeing a fundamental shift in how SMEs approach their financial planning and risk management. The current environment is prompting businesses to rethink their funding strategies and adopt more resilient practices."

SMEs exploring alternative funding avenues

Faced with these economic challenges, over half of small businesses (58%) plan to invest further into their business to generate future cashflow... However, awareness of alternative lenders remains low, with 19% of SMEs likely to consider alternative lenders for business loans in the coming year.

Interest in alternative lending is driven by the need for features that traditional lenders may not offer, such as faster access to funds (29%) and quicker approval times (24%).

Despite low awareness for alternative lenders, 16% of SMEs are actively seeking professional advice about their business finances. Advisers can provide essential guidance for business owners on accessing and leveraging new solutions. The majority (around 70%) of Prospa’s settlements in New Zealand originate from their adviser channel, with 55% of adviser business for Prospa’s Line of Credit product.

Prospa’s Business Line of Credit offers small business ongoing access to funds, where they can use and reuse during uncertain economic conditions and only pay interest on the funds they draw down

Begbie underscores the importance of this advisory role, “Advisers are more important than ever in helping businesses navigate today’s complex economic environment. Year on year, we see more of our business coming through our adviser channel.

“It’s clear that as economic times become more uncertain, business owners are looking for trusted, professional guidance to help them find solutions in an otherwise stressful time.”