Small business looking through Omicron challenges, lending soars, Prospa says

Prospa CEO and co-founder Greg Moshal, left, with co-founder Beau Bertoli. Mr Moshal is optimistic that small business will navigate the Omicron disruption well. Picture: John Feder
Prospa CEO and co-founder Greg Moshal, left, with co-founder Beau Bertoli. Mr Moshal is optimistic that small business will navigate the Omicron disruption well. Picture: John Feder

The spike in Omicron Covid-19 infections and issues hitting the small business sector will prove a “temporary challenge”, with many companies looking through the latest disruption, lender Prospa says.

Prospa co-founder and chief executive Greg Moshal said business lending and sentiment was holding up, despite crippling staff shortages and supply chain issues impacting some industries.

The small business lender is optimistic on the economy’s prospects in 2022, after reporting record quarterly loan originations for the three months ended December 31. Prospa’s shares surged more than 14 per cent before retracing some ground to finish Monday’s trading 13.7 per cent higher at 91c. But the stock remains well below its 2019 initial public offering price of $3.78.

“We’re at a time where, you know, there can be a lot of doom and gloom … there’s also I think, just the resilience that’s been shown, you know, how well Australia has performed as a country,” Mr Moshal said.

“The potential is there for, for the whole economy, to really thrive in 2022.”

Mr Moshal said Prospa was seeing a lot of small business lending activity in January.

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“Even those that are affected (by Omicron), and we are still seeing a lot of those companies still looking to borrow and thinking ahead, they’re looking forward to you know January, February, March.

“This is very much being viewed as a temporary challenge with Omicron … I got to watch what happened in South Africa. And it happened about a month and a half ahead of Australia. And just the pace of which Omicron came in, peaked, and then reduced, you know, was great to see. And hopefully we see the same thing in Australia.”

Prospa’s December quarter loan originations were a record $186.6m, soaring 85.3 per cent on the same period a year earlier. For its first half of fiscal 2022, originations amounted to $315.1m, up 75 per cent on the prior corresponding period.

First half earnings before interest, tax, depreciation and amortisation printed at an unaudited $9m, up from $4.1m a year earlier, as loan growth and its technology platform helped to buoy earnings.

Prospa’s gross loan book climbed 16.4 per cent to $514.6m in the December quarter, versus the previous three months.

The non-bank lender’s growth comes as the major banks are stepping up their efforts to retain customers across the mortgage and business lending space, and are also seeking to improve loan turnaround times.

Prospa says its credit decision engine updates proprietary customer and industry data to reflect changing trading conditions, aiding it in managing risk. Monday’s update said Prospa remains within its board mandated loss rate of 4 per cent to 6 per cent. The company said while it was a participant of the government loan scheme for small business, which guarantees part of the loan, it was writing negligible loans via the scheme in recent quarters.

Prospa has, in the past, faced criticism for charging interest rates at markedly higher interest rates than the banks.

Consolidation is another theme playing out in the lending sector. ASX-listed Latitude is seeking to buy Humm’s consumer business in a mooted deal that doesn’t include the latter’s commercial book. The transaction, if it proceeds, will likely put Humm’s commercial operations in play, which could also stoke further consolidation among business lenders.

While not commenting directly on any interest in Humm’s commercial unit, Mr Moshal said Prospa was open to acquisitions and there were advantages to scale in the lending and payments industries.

“We’re in a fortunate position where we do have a really strong cash balance,” he added. “If the right opportunities are there, we’d certainly be looking at that. We don’t have any immediate plans in mind, but certainly … from a balance sheet and cash position, depending if it’s the right business, we could take advantage of that.”

Prospa had $580.6m in available third-party facilities as at December 31, $105.1m of which were undrawn, and $110.5m in cash, according to its Monday update.

The lender is trialling a business transaction account, which it plans to roll out in the third quarter of fiscal 2022. It is also moving more into the business payments and financial software space.