Prime mover in SME lending evolution

Prime Capital lends to small business clients – perhaps the sector of the Australian economy hardest hit by the COVID-19 crisis. Paul Scanlon, Prime Capital’s Sydney-based chief executive, discusses the resilience and importance of Australia’s SME sector and the company’s expectations as the economy deals with the pandemic’s latest phase.

The rollercoaster of the last 18 months has continued with recent COVID-19 lockdowns. What has been Prime Capital’s experience through this period?

Initially, with the shock of the first lockdown in 2020 there was a big slowdown and a lot of uncertainty. Our first call to action was to help customers. We focus on small-business clients and this was a heavily affected sector, so we had a lot of conversations about payment relief.

This was quite challenging because a lot of support was given to banks but not as much for nonbanks. Providing support was left mostly to us – but this was okay.

By September and October 2020, we were back to business as usual. We were nervous about what would happen at the end of JobKeeper in early 2021 so we did not write as much business as we could have. In the end, the economy moved smoothly past the end of JobKeeper.

We began to receive more enquiries, and write more business, than ever before in our 24 years of operation. April to July were huge months so we have been focused on our front end and getting loans settled.

In August and September there has been another shock with New South Wales and Victoria in lockdown, and this has slowed things down again.

Do you expect the market to bounce back as strongly this time?

Everyone knows more now about what we are dealing with, though people are receiving less support from the government. Regardless, I think after Christmas and into 2022, as the economy reopens, we could see another explosion of activity similar to earlier this year.

We are positioning for growth by raising capital and hiring staff. This is challenging given the interruption to business activity but we are putting a lot of work into it.

Government stimulus has been widely credited with safeguarding the Australian economy from the worst of the crisis, but it also has resulted in some lending-market distortion that favours banks over nonbanks. How has Prime Capital responded to this challenge?

We are a small player in the overall market and the big-four banks offering record-low interest rates, with the help of the government, has a flow-on effect to us. We are dealing with small-business clients, for whom loans are more expensive than consumer residential loans, but price pressure still comes through because of the existence of ultra-low rates elsewhere in the market.

A lot of refinancing activity is also taking place, which slows down processes like valuation, documentation and settlement. The whole industry is creaking at the seams with record activity in the sector. We are all in this ecosystem and finding ways to deal with the challenges.

Small businesses in aggregate are a very large portion of the Australian economy. How important is the type of lending Prime Capital facilitates?

The best thing about this business is the fact that we hear from ecstatic customers every day. Some have been frustrated or concerned about securing funding given it is a relatively infrequent transaction for them. They may be very good at the business they run but securing finance is not their area of expertise. Regulation is appropriate for the mass market but it can make life hard for small businesses.

Clients come to us and they get an easy transaction. One of my favourite numbers is our net promoter score of 84 – which represents world-class customer feedback.

What I read into this is just how difficult it is for small businesses to get funding in Australia. We established our business to cater to this set of clients but, overall, it would be much better for the Australian economy if it were easier.

What innovation does Prime Capital believe would most benefit the lending market as it emerges from the pandemic?

Better data sharing is the future for more efficient transactions. Everything people need to obtain credit – their payment and lending history, expense and income analysis, tax returns and much more – exists without them needing to do anything.

Governments, banks and other institutions have oodles of information about everyone, yet people still need to fill out documents manually to apply for credit. We need to move past this situation as quickly as possible. The sooner we can, the better the cost of funds people will receive.