Inflation expectations driving small business lending at Prospa

Small business lender Prospa is starting to see inflation hitting its customer’s books, with many looking to lock in spending now ahead of further price rises.

Fintech group Prospa, which was founded by Greg Moshal (L) Beau Bertoli (R), has reported a hefty jump in small business lending, driven by rising inflation fears. Picture: Supplied

Inflation is starting to make itself felt in customer debts, according to small business lender Prospa, which posted a $69m lift in its loan book.

Revenue surged 61 per cent to a record $45.9m for the quarter ended March 31, taking the total to $124.4m for the year to date.

Despite that, Prospa lent $172.1m in new loans to businesses in the third quarter.

Prospa chief executive Greg Moshal said business loan accounts were showing signs of inflation.

Mr Moshal said loan accounts were pointing to companies seeking to lock in lower prices by making bigger purchases of materials and supplies before prices rise amid “inflationary pressure”.

“There is some pent up spend that’s coming out, also small businesses have stronger savings and therefore more willing to invest,” he said.

“Small businesses … are bringing forward investments or trying to gear up and take advantage of the current environment.”

Mr Moshal said in particular businesses in the construction space were moving to purchase stock.

“In a general movement in pricing we’re starting to see that,” he said.

The news comes as newly released data showed inflation jumped to 5.1 per cent in the March quarter from 3.5 per cent. Many rate watchers now expect the Reserve Bank of Australia to move to head off further inflation pain, with potential rate rises on the horizon.

Prospa has been moving to secure its funding, securing the backing of a European Bank as a senior note holding for its debt facilities.

The unnamed bank put in $27m and holds an option to further upsize to $135m to support future loan book growth.

Propsa also boosted its Pioneer trust’s total facility limit by $60m to $198m. It has allowed Prospa to pull back funding costs on the company’s trusts, with expectations of reducing funding margins into 2024.

Mr Moshal said Prospa was looking to use efficiencies in its funding to head off passing through potential rate rises to its customers.

“We still feel we’ve got a nice bit of room in terms of the efficiencies, then we will look at how we can try to maintain pricing for customers,” he said.

“Of course there is a point when it will be passed on. We will certainly be doing what we can.”

Mr Moshal said the debt data was showing some degree of pent up spend due to the Covid-19 hangover.

The lender said the third quarter of the financial year was often quiet, with the Christmas-holidays spending splurge leading to a hangover in the new year.

Prospa’s pointed to its latest update, which saw new loan originations lift 42 per cent in the latest quarter, as a sign of economic exuberance.

The booming lending sees Prospa topping its 2021 lending record, with $487.2m lent to businesses so far.

The lender’s gross loan book now stands at $583.6m.

Lending to New Zealand Business has exceeded $100m, after establishing its facility to fund loans in the country in late 2019.

Mr Moshal said bad debts at Prospa were “in a good position” and the loan portfolio continued to show “good performance”.

Shares in Prospa were up 1.2 per cent at 84c in a lower market on Wednesday afternoon.