19 Apr 2012

SME borrowing practices 'holding back economy'

7:00 am on 19 April 2012

An Auckland finance company says small- to medium-sized enterprises (SMEs) are fixated with borrowing against the family home, and that's holding back the economy.

Lock Finance CEO Simon Thompson, who is also a consultant to the World Bank, says 90% of bank loans to SMEs in New Zealand are guaranteed by the family home.

He says business owners need to realise they can raise more finance by borrowing against a range of SME assets, including inventory and account receivables, for which there is a strong legal framework.

Mr Thompson says banks prefer mortgages and real estate to assets as security for lending because asset finance is more labour-intensive and requires more staffing.

He says there is much more asset-based financing for SMEs in Australia and the UK. New Zealand lags in this regard, he says, despite having "a fantastic infrastructure to be able to do it".

Mr Thompson says the failure to use assets for borrowing is not only preventing companies growing in size, but is also holding back the growth of the economy as a whole.

"SMEs are a huge part of any economy," he says. "We think they should be using the assets that they're buying and the assets they have in the business to be able to get that growth and help grow the economy."