Borrowing Against the Family Home Stymies the NZ Economy

New Zealand SMEs’ (small to medium-size enterprises) fixation with financing their businesses by borrowing against the family home is holding the economy back according to Lock Finance, which has specialised in business financing since 1889.

Lock Finance CEO Simon Thompson, who is also a part time consultant to the World Bank, explains: `SME growth should be financed from the assets of the company not through borrowing against the family home.  We are far too reliant on the home, which guarantees 90 per cent of bank lending to New Zealand SME business and it’s holding the growth of our economy back.  SMEs should understand that the country has a world-class finance infrastructure, which they could be taking advantage of.

`Business owners should realise there is a more diverse range of SME assets (such as plant, inventory and account receivables) beyond traditional security such as property-based assets on which to base their borrowing.  New Zealand leads the way in this area and the World Bank sees us as a ‘best practice’ country. We have a very good legal framework (based on our Personal Property Securities Act), a well-used online security registry system and active market lenders, such as Lock Finance, who do not need property security when lending to the SME sector.’

Mr Thompson points out that although we have one of the best SME finance infrastructures in the world, New Zealand banks are simply not willing to use it and our SMEs are not aware of the alternatives.

He says: `We have this very good infrastructure but we are not using it.  One problem is that our banks are very good generalists but not specialists in this sector. The other is that many of our SMEs are stricken with inertia. There is that old Boat-Bach-Beemer attitude that once you have achieved a certain level there is no need to push further. If our SMEs would only work their business that bit harder we could take the economy to another level.’

Lock Finance, which has just signed on as a National Patron of Business Mentors, sees support for mentoring as an integral part of its vision for the economic development of New Zealand.

Mr Thompson adds: `The country’s common future after this recession lies with nurturing our small and medium business sector.  It’s never been more important to provide small and medium enterprises (SMEs) with support so that they can weather this period of uncertainty and be fit to take advantage of the upturn.  It’s a great fit with Business Mentors New Zealand and at Lock Finance we do believe that by supporting the principles of business mentoring, we are investing in our own business opportunities as well as being good corporate citizens.  After all, healthy businesses generate business.’

Lock Finance is a 100% owned New Zealand finance company, providing financial services to small and medium-sized businesses throughout New Zealand.  Lock Finance aims to help SMEs optimise their business growth by providing a range of fully integrated funding options including working capital, trade finance, debtor finance and factoring.