Prospa’s embarrassing false start raises questions

The last-gasp postponement of Prospa’s float prompts a number of questions, including about the interest rates it charges.

Prospa founders Greg Moshal, left, and Beau Bertoli.

What a miserable outcome for the over-hyped but underwhelming listed tech sector that a flagship company — Prospa, the fintech lender — has its float halted by regulators at the very last moment.

Charging 41 per cent annual interest rates to small business who can access your loans online is not innovation, it’s exploitation.

Star names in private equity such as Paul Bassat’s Square Peg and Daniel Peter’s Airtree Capital supported and give credence to this company, which poses as an alternative when the reality is that it may be cheaper to finance a business with credit cards.

Full marks to Small Business Ombudsman Kate Carnell, who blasted the fintech sector in The Australian last year for not clearly advertising the terms on which they lend.

Prospa’s embarrassing false start on the sharemarket, following ASIC questions over its loan terms, now prompts a number of serious questions:

* How often can a small business really benefit from finance offered at 41 per cent — in an economy growing at less than 3 per cent?

* Do small business owners actually realise the rates demanded? Sure, Prospa and its peers are faster and they do not require property to secure the loans, but the price of those facilities is horrendous.

* And what if rates were to rise, as they surely will in the months ahead? Of course you might argue that if customers are already paying 41 per cent what difference would an extra per cent make anyway.

Prospa’s customers take on these loans for the short term, but even cutting that annualised rate in half, which might be more realistic for many Prospa deals, the rates remain unbelievably high.

Founded in 2011, Prospa clearly thrived in its early years where it was miles ahead of the regulators and had the market to itself. No wonder the venture capital money came rolling in.

A few months ago when the Financial Times ran its 1000 fastest growing companies in Asia, Prospa took the top prize with more than 400 per cent annual compound revenue growth, having lent out more than half a billion dollars.

Prospa has emerged because there has been market failure. The major banks, obsessed as they are with housing, have left a gap in the market.

And it goes without saying that small business and big banks are rarely happy with each other in any market at any time, but Prospa and its kind are not the answer for anyone.

Nobody wins here except a small group of founders and investors and even for them the Prospa float now looks ambitious.