“The thing that’s good about these guys is they are used to lending unsecured and they are used to lending quickly,” Ms Carnell said after Prospa, Liberty Financial and Moula were named as the latest participants in the scheme.
Prospa, which is a specialist online SME lender, has been criticised for charging interest rates as high as 26.5 per cent for unsecured loans under its risk-based pricing model, which tailors rates to individual businesses. It lends to many SMEs that are deemed too risky by mainstream banks and targets a loss rate on its loan book of between 4 per cent and 6 per cent. By comparison, the major banks’ loss rates are below 0.4 per cent.
Ms Carnell revealed she had pushed for the inclusion in the loan guarantee scheme of fintech firms that had signed up to the sector’s code of conduct, as signatories have robust complaints-handling mechanisms and a commitment to transparency on loan pricing.
But she wanted to see evidence that these fintechs were passing on lower rates for loans written under the scheme, which will be backed with a 50 per cent government guarantee.
“We would be really unhappy if they don’t reflect the fact the government’s picking up half the risk,” she said.
Prospa chief executive Greg Moshal, who saw his firm’s share price surge 33 per cent to $1 on Tuesday following its inclusion in the scheme, said Prospa would retain its risk-based pricing model but reduce interest rates.
“Obviously there is increased risk in this environment … but we’ve been able to decrease our pricing as a result of the scheme.”
The company will receive an allocation of up to $223 million under the scheme, which was designed to help support SME lending during the coronavirus pandemic through the provision of unsecured loans for working capital.
Under the terms of the arrangement, the government will guarantee 50 per cent of eligible loans that Prospa writes between April 14 and September 30. Borrowers, who can tap as much as $250,000 for three-year loans, will get a six-month repayment holiday, with interest capitalised.
The terms broadly mirror those that will be provided to major banks under a $90 billion funding facility created by the Reserve Bank.
Mr Moshal, who is leading his company from his home office in Sydney’s Double Bay, said that while the crisis had highlighted the resilience of small business owners, many were struggling and would need fast access to credit.
He said Prospa’s lending infrastructure and approval processes meant it could lend quickly and responsibly, with the loan guarantee further reducing the firm’s risk.
“We can do that evaluation and still bring prices down. We’re happy to see the government include banks and non-banks and it’s a great thing for fintech as well.”
Surprise profit warning
While Prospa shares rallied on Tuesday, the stock has halved since the market hit its recent peak on February 20, and is well below the $4 level seen last October, before the firm issued a surprise profit warning.
Liberty Financial was also named on Tuesday as a participant in the SME Guarantee Scheme, and will offer three-year unsecured loans at a rate of 4.95 per cent under its Liberty Business Care product.
Chief executive James Boyle said Liberty had a team of experienced SME credit underwriters and a national network of brokers who would help ensure loans were put into the market quickly.
“The government wants these funds delivered into the hands of small business as quickly as possible and we have mobilised our resources to make this a priority,” he said.
SME challenger bank Judo announced last week that it had secured $250 million through the Structured Finance Support Fund that was established to manage the provision of funding to non-banking lenders. It is being run by the Australian Office of Financial Management.