Prospa hit by Covid as CBA, ANZ enter the sector

Online small business lender Prospa reports a loss but says it can turn things around, as major banks encroach on the sector.

Joint Prospa CEOs Greg Moshal, left, and Beau Bertoli. Picture: John Feder

Online small business lender Prospa has posted an annual loss in line with the prior year, as appetite for credit dries up amid the COVID-19 pandemic.

But the group says it is well positioned to recover, despite two of the major banks announcing their entry into the sector.

Loan originations fell by 10 per cent in the 2020 financial year to $450.9m, while an EBITDA loss of $19.5m was recorded, compared to a $800,000 loss posted in 2019.

The company offers small business loans of up to $300,000 and lines of credit of up to $100,000

Ninety-five per cent of loan originations occurred in the first three quarters of the year, with just $21.9m lent in the final quarter, highlighting the impact of COVID-19 on small business’s appetite for credit.

However, loan originations in both Australia and New Zealand began to rebound in July to roughly half of January levels, weighted towards retail, building and trade, and the professional services industries.

Net loss after tax was $24.9m, slightly above 2019’s loss of $24.7m, due to an $18m forward-looking provision related to the expected impact of the COVID-19 pandemic.

The company, which listed on the ASX in 2019, did not declare a dividend.

CEO Greg Moshal said the lender was well positioned to recover from the damage caused by the pandemic.

“We will continue to leverage our industry-leading knowledge of the small business economy and we’re confident that the actions taken over the last 12 months have positioned Prospa well to support the recovery in the sector,” he said.

The company said that despite the economic downturn, revenue increased by 4.2 per cent to $142.1m and total unique customers increased by 43.5 per cent on June last year to 28,750 people, driven by strong activity prior to the pandemic.

Average gross loans grew by 35 per cent to $433.3m, which the company attributed to strong early year growth and a full launch in New Zealand.

However, realised portfolio yield fell by almost 10 per cent to 32.8 per cent due to the cost of extending repayment terms to customers impacted by the pandemic.

Loan impairment expenses grew to $52.9m, an increase of 73.1 per cent in 2019 and the total allowance for expected credit losses as a percentage of receivables was increased to 11.1 per cent, from 6.1 per cent in June of 2019.

Prospa said that as of August 20, 1769 customers were on full or partial deferral arrangements – a decrease of a peak of 4701 in May.

To combat the impacts of the pandemic, expenses were reduced by 32 per cent in the fourth quarter. Mr Moshal took a 50 per cent pay cut, management teams took a 20 per cent pay cut, 40 roles were made redundant and $1.4m was received in JobKeeper wage subsidies.

Mr Moshal said Prospa’s intimate knowledge of the small business credit market would see the company continue to grow, despite the fact the company is now directly challenged by the major banks who are wading into the instant small business lending market.

ANZ on Thursday launched a new online lending platform to provide small businesses with conditional approval for up to $200,000 in unsecured lending in 20 minutes.

Commonwealth Bank is offering existing small business customers approval and instant availability of up to $50,000 in funds within 20 minutes.

Mr Moshal told The Australian that the banks have dipped their toes in the sector before and did not offer the same knowledge of the sector that Prospa does.

“We’re uniquely placed with our distribution, our understanding of our customers and our ability to provide small business capital to our partners,” Mr Moshal said.

“All the banks have had products of varying degrees trying to serve businesses of this size, it’s not absolutely new.

“They are predominantly targeting their existing customer bases, but we’re very much focused on small businesses and always have been … it puts us in a unique position.”

Prospa did not provide official guidance but said it would continue to provide quarterly updates on business operations.

Its shares closed down 7.8c, at 83c each.