What NZ could learn from US on financing small business
Ten years ago I shared some thoughts on where and how we could improve New Zealand. Some may recall the call for a monorail. Not that I thought we should have one but we needed something iconic and better public transport. Time may have proven in my favour on that one.
The past five years I’ve been a Kiwi in New York, new country, new business, new learnings and new ideas. So I’ve returned to the trusty Herald to share takeaways that could benefit other Kiwis.
I recall one founder I met in Auckland way back, who had a great startup idea. The idea had promise but it was very risky. It was likely to have a few curveballs before the idea would yield a sustainable or high growth business. The clincher though, his parents had taken a $250,000 mortgage to fund it. That’s when I suggested that this wasn’t the right idea to pursue. This is an oft repeated story. It’s different when professional investors take a bet — but the family home isn’t always the best one to put up.
Recently the Government has opened up $300 million for startups (tick). Which is a step in the right direction. What could be the logical next step to opening more tools for small businesses? That’s where inspiration from the US comes in.
The capital options available to Americans abound. To be fair it is the heart of financial innovation. Which hasn’t always turned out for the best. But there is one in particular from which the backbone of our economy would benefit — governmentguaranteed small business loans.
In New Zealand we finance businesses using our homes. Which as you can imagine (or might be experiencing right now) is not ideal. It’s a factor of why we are one of the only modern nations with declining productivity and low investment in R&D.
Businesses can’t risk it, the house is on the line. For businesses that fit the requirements they can access capital from their bank. The Small Business Administration provides a guarantee on it. The amounts go all the way up to $5m for suitable businesses.
It’s a cliche to say a country is powered by its small businesses but I’ll say it again, a country is powered by its small businesses.
At the moment in New Zealand banks are more concerned about the ratios on your house than your business. This could mean none of this Uncle Baza losing the family home, sinking it into his declining business. Proper diligence to access financing will improve businesses.
This would be a tremendous financial tool for all New Zealand businesses. It would de-risk the family home and encourage investment in businesses. The guidelines would also create accountability for businesses.
Terms would need to be fine tuned.
Lower interest rates for export businesses. Different tiers, after all the definition of a small business in the US is different. Sub $35.5m USD, or $50m NZD.
That’d be a neat thing though, if we could shift our definitions up. To create as the Germans call it, our own Mittelstand.