Financing SMEs and Entrepreneurs 2020

33. New Zealand

Key facts on SME financing

New Zealand has been recognised as the number one country in the world for ease of doing business with the shortest time to start a business; and the first in the world for corruption transparency.

SMEs, when defined as businesses with 0-49 employees, make up 99% of New Zealand businesses.

The upward trend of bank lending to businesses has continued in 2018 with an increase of 4.92% from 2017 to NZD 113.0 million. This was also true for SME bank lending, which reached NZD 68.2 million up from NZD 64.6 million in 2017. This did not significantly affect the share of SME lending of total business lending as it only increased by 0.4% to 60.4%.

Overall the New Zealand financial system is resilient to economic risks. However, it is vulnerable to severe risks, particularly the highly indebted New Zealand households and dairy farms. It is also vulnerable to international risks that could cause a major global economic recession.

Lending conditions for other sectors were also favourable in the second half of 2018. This was particularly true for commercial property loans.

Non-performing loans for all businesses have remained at the same low levels to the past three years at 0.5%. Non-performing loans for SMEs have decreased since 2017 from 0.9% to 0.6% in 2018, now being only slightly above the percentage of total non-performing business loans.

Interest rates for SMEs increased by 0.1% from 2017 to 2018, returning to 2015 levels of 9.4% after a brief decrease in 2016 and 2017. Data on interest rate spread and large business interest rates is no longer available since the Reserve Bank of New Zealand stopped the survey gathering this data.

After a rapid increase from 2016 to 2017, debt finance rejection rates for SMEs have decreased to 9.03% in 2018. This was significantly lower than the 11.7% rejection rate in 2017. The decrease in rejection rates could be caused by the increase in SME outstanding loans as banks were lending more money to SMEs in 2018. The data for rejection rates in New Zealand only includes businesses with 6-49 employees. This could affect the statistics as smaller and micro-businesses are likely to be rejected, which will not be included in the data available.

Growth in the New Zealand venture capital markets has been strong. In 2018, NZD 111.3 million were invested in seed and early stage ventures. This is an increase of 28% from the previous year.

New Zealand has eight licensed peer-to-peer lenders and eight licensed crowdfunding providers. These have been an increasingly popular source of funding for both individuals and businesses over the past few years.

Bankruptcies have continued their downward trend over the last three years to a new low of 1 486 in 2018. This figure only includes personal insolvencies but not corporate liquidations. However, many SME owners rely on their personal assets to finance their business.

Payment delays for business-to-business transactions have stayed almost the same at 5.8 days in 2017 to 5.9 days in 2018. SME payment delays decreased significantly from 6.3 days in 2017 to 5.8 days in 2018. The government has continued promoting e-Invoicing, which will be introduced in late 2019 with the aim to address payment delays. The government is also looking into other ways to address unfair payment terms and delays.

Table 33.1. Scoreboard for New Zealand

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs	NZD billion	..	..	31.6	32.4	32.1	30.9	32.4	34.2	36.5	60.4	64.6	68.2
Outstanding business loans, total	NZD billion	80.0	87.6	80.4	78.9	79.9	83.0	85.4	89.0	95.0	101.6	107.7	113.0
Share of SME outstanding loans	% of total outstanding business loans	..	..	39.3	41.1	40.2	37.2	37.9	38.4	38.4	59.4	60.0	60.4
Non-performing loans, total	% of all business loans	..	..	1.7	2.1	1.8	1.5	1.1	0.8	0.6	0.5	0.5	0.5
Non-performing loans, SMEs	% of all SME loans	..	..	2.7	2.9	2.8	2.7	2.4	1.6	0.7	1.1	0.9	0.6
Interest rate, SMEs	%	12.2	11.2	9.8	10.1	10.0	9.6	9.5	10.3	9.4	9.2	9.3	9.4
Interest rate, large firms	%	9.0	8.2	5.7	6.3	6.1	6.0	5.4	6.0	5.4	4.6	..	..
Interest rate spread	% points	3.2	3.0	4.1	3.8	4.0	3.5	4.2	4.3	4.0	4.6	..	..
Rejection rate	% (SME loans rejected/ requested)	6.9	11.6	18.4	20.9	11.4	14.6	9.4	8.4	10.6	4.8	11.7	9.0
Non-bank finance
Venture and growth capital (seed and early stage)	NZD million	29.5	32.6	43.2	53.1	34.8	29.9	53.1	56.4	61.2	69.0	87.0	111.3
Venture and growth capital (seed and early stage) (growth rate)	%, year-on-year growth rate	..	10.3	32.8	22.8	34.5	14.1	77.6	6.3	8.5	12.6	26.2	28.0
Other indicators
Payment delays, B2B	number of days	..	..	..	..	15.7	13.5	12.7	10.4	7.1	5.9	5.8	5.9
Bankruptcies, total	number	3 585	2 504	2 564	3 054	2 714	2 417	2 188	1 921	1 979	1 996	1 863	1 486
Bankruptcies, total (growth rate)	%, year-on-year growth rate	..	-30.2	2.4	19.1	-11.1	-10.9	-9.5	-12.2	3.0	0.9	-6.7	-20.2

Source: See Table 33.4.

SMEs in the national economy

SMEs are a significant part of the New Zealand economy. SMEs (businesses with 0-49 employees) make up 99% of all businesses in New Zealand. SMEs employ 42.6% of the workforce. However, this does not include businesses with zero employees such as sole operators and self-employed. These figures are very similar to 2017, indicating a steady reliance on SMEs as part of the New Zealand economy.

Table 33.2. Firm sizes in New Zealand

Firm size (by employees)	Number	%
Zero employees	376 785	70.4
Micro (1-5)	101 388	19.0
Small (6-19)	40 683	7.6
Small-medium (20-49)	10 323	1.9
Medium (50-99)	3 192	0.6
Large (100+)	2 562	0.5
Total	534 933	100

Source: Statistics New Zealand Business Demography, February 2018.

SME lending

SME business lending from banks has been steadily increasing since 2012. It rose to NZD 68.2 million in 2018, up NZD 3.6 million from the previous year. Overall business loans have also increased since 2010, reaching a new high of NZD 113.0 million in 2018. During the past three years, the share of SME loans of total business loans has stayed at similar levels. In 2018, the share of SME outstanding loans was 60.4%. Please note that the Reserve Bank of New Zealand measures SMEs as businesses with annual turnover of less than NZD 50 million and/or businesses with fewer than 20 employees.

Credit conditions

The Reserve Bank of New Zealand considers the New Zealand financial system as overall stable, however in case of severe events those highly indebted will be most at risk. There is also vulnerability in the system for international disruption in the form of a major global economic recession. The commercial property, household and dairy sectors appear most vulnerable based on the ‘debt-to-income (DTI) ratio. New Zealand is facing a few domestic factors slowing growth. These include slowing net migration, low house price inflation and low business confidence.

The Government is in the process of reviewing the Reserve Bank of New Zealand Act. New Zealand’s banking system continues to perform well and remains profitable by international standards. The Reserve Bank has implemented policies, such as capital and liquidity requirements, to enhance financial system stability and build resilience to unexpected shocks over the past ten years. It also reduced the Official Cash Rate in May 2019 in response to New Zealand’s slower growth momentum.

More SMEs were able to access debt finance in 2018 than in 2017. The rejection rate for businesses seeking debt finance was 9.03% in 2018, compared to 11.68% in 2017. This means that 90.97% of SMEs were able to access finance on acceptable terms. The rejection rate also includes businesses that received finance on not acceptable terms. This data is for businesses with 6-49 employees only, therefore excluding an important fraction of SMEs in New Zealand (0-5 employees).

Table 33.3. Credit availability in New Zealand

Firm size	Credit Availability	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
6-19 employees	Available on acceptable terms	92.3	87.1	81.5	77.5	88.5	84.1	90.0	90.6	88.5	94.6	87.0	90.9
	Available, but not on acceptable terms	5.7	8.6	13.1	12.8	7.8	10.8	7.7	6.5	7.7	3.7	8.1	5.7
	Not available	2.0	4.4	5.5	9.7	3.6	5.2	2.2	2.9	3.8	1.7	4.9	3.4
	Total	100	100	100	100	100	100	100	100	100	100	100	100
20-49 employees	Available on acceptable terms	95.9	93.7	82.1	85.0	88.9	91.0	92.6	94.8	92.6	97.2	93.3	91.3
	Available, but not on acceptable terms	3.5	5.6	14.5	12.3	7.7	7.3	6.3	4.5	5.6	1.5	5.5	5.7
	Not available	0.6	0.8	3.4	2.7	3.4	1.7	1.1	0.6	1.8	1.2	1.2	3.0
	Total	100	100	100	100	100	100	100	100	100	100	100	100

Source: Statistics New Zealand Business Operations Survey, 2018.

Interest rates for SMEs have been increasing by 0.1% per year since 2016. This means interest rates increased to 9.4% in 2018 from 9.3% in 2017.

Alternative sources of SME financing

New Zealand’s venture capital industry has been developing since the early 2000s with the establishment of the government Venture Investment Fund. In 2006, the government also implemented the Seed Co-Investment Fund to develop early stage markets and develop a pipeline for the Venture Investment Fund. The introduction of the Seed Co-Investment Fund has helped develop a vibrant angel investment industry. This is also captured in the growing seed and early stage investment. In 2018, NZD 111.3 million were invested in seed and early stage ventures. This is an increase of 28% from the previous year. It follows on consistent growth in previous years with a 26.2% increase from 2016 to 2017 and 12.6% from 2015 to 2016.

Besides bank lending and venture capital investment, businesses can also seek finance through one of New Zealand’s eight licensed peer-to-peer lending providers. In 2018 the total value of trades of these lenders was NZD 6 570 394 for businesses and individuals.

The outstanding loan value of the total 220 business loans in 2018 was NZD 101 026 404. This is a significant increase from the NZD 29 574 542 in 92 outstanding business loans in 2017.

New Zealand also had eight licensed crowdfunding providers in 2018, although two of these had their licenses suspended in the same year. The crowdfunding sector raised NZD 16 686 607 in 2018 (proportion of businesses unclear).

Other indicators

As the share of non-performing business loans for SMEs decreased from 0.9% to 0.6% from 2017 to 2018, the overall downward trend of non-performing loans to SMEs since 2009 continued. This shows that the SME sector is becoming more profitable.

The late payments for all business-to-business transactions in New Zealand increased slightly to 5.9 days late. Whereas, payment delays for SMEs decreased from 6.3 days in 2017 to 5.8 days in 2018. This could be due to the government indicating that it is looking at business-to-business transaction payment terms.

Bankruptcies have also been continually decreasing since 2016. Based on financial year data the number of creditor and debtor reported personal bankruptcies was 1 996 in 2016, 1 863 in 2017 and 1 486 in 2018.

In 2007, the government introduced No Asset Procedures and Summary Instalment Orders to allow individuals with debt under NZD 47 000 to avoid the traditional bankruptcy by being released from their debt or entering a formal agreement to repay the debt.

Government policy response

The New Zealand government is running several initiatives to help SMEs financially and in general.

One policy response to support businesses seeking finance in New Zealand is the new Venture Capital Fund. In May 2019, the Government announced it would be investing in New Zealand’s early stage capital markets to enable more innovative, knowledge-intensive, high-value firms and start-ups to grow and scale within New Zealand. To do this the Government has committed NZD 300 million to be invested through a fund-of-funds model to support New Zealand’s early stage capital markets. This initiative addresses the gap in expansion capital that exists in New Zealand for firms looking for funding beyond the stages of seed or angel investment. The aim of the programme is to increase investment activity, incentivise private capital and institutional investors to enter the early stage capital markets, and commercialise a greater volume of technology.

One initiative the government has been promoting to businesses is e-Invoicing. E-Invoicing is the ability to directly send and receive standardised electronic invoice documents between two different businesses’ finance and accounting systems. This reduces processing time, errors and payment times, and improves security and productivity of businesses. The introduction of e-Invoicing by late 2019 will help ensure businesses are paid on time and improve cash-flow, bringing significant benefits, in particular for New Zealand’s small businesses.

Over 50 government agencies are currently incorporating the New Zealand Business Number into their systems. This is a globally unique identifier available to all New Zealand businesses. It helps New Zealand businesses better connect and interact, through a shared network of information. The New Zealand Business Number links to core business information which organisations are most often asked for. The New Zealand Business Number can be used to quickly and easily check the details of new suppliers and customers, speeding up taking on new customers and suppliers. The New Zealand Business Number also enables e-Invoicing.

The government’s dedicated resource for SMEs is called business.govt.nz. This is a predominantly online resource designed to help small businesses in New Zealand succeed. A key focus is helping small businesses access finance and become more productive. Business.govt.nz is run by a team at the New Zealand Ministry of Business, Innovation and Employment and the New Zealand Business Performance Panel, which is a group of subject matter experts. Business.govt.nz is launching the first in a series of new online tools in November 2019 created in partnership with small businesses, banks and management consultancy firms, to help small businesses access debt finance. This follows a study run in partnership with Duke University in 2019 that found accessing finance is a major problem for businesses with 1-5 staff. In December 2019 business.govt.nz is also hosting the first Asia-Pacific Economic Cooperation (APEC) SME Productivity and Performance Forum. Officials and experts from across APEC economies will spend three days in Wellington focusing on small business access to finance, support for SMEs, management capability, research, measurement of impact, women in business. Business.govt.nz is also launching an initiative called the Kiwi Business Boost in November 2019 that aims to help small businesses become more productive, sustainable and inclusive. The pilot of this initiative launches in November 2019 with 52 free small business-focused events and a new online platform that tailors guidance to the individual needs of each small business.

To support businesses doing R&D, the government launched an R&D Tax Incentive in 2019. It takes effect from the 2019/2020 tax year. It offers a credit rate of 15% to businesses with a minimum R&D expenditure threshold of NZD 50 000 per year. The scheme also allows pre-profit firms to receive the credit as a refund. This scheme is part of a wider suite of tools to support start-ups, such as funding support for incubators and accelerators, R&D project grants, and access to scale-up capital.

Since 2012, the New Zealand government has also been running Better for Business, which is a strategic cross-agency programme focused on making significant improvements to the business experience with government. It helps businesses to be more productive by spending less time dealing with government and more time on their business. One part of Better for Business is the Business Connect initiative that brings multiple agency services together to make the experience of applying for, managing and renewing ‘permissions to operate’ (e.g. licenses, consents, permits, certifications, registrations) more seamless. Integrating the New Zealand Business Number, Business Connect enables businesses to provide information across all levels of government from one place. Another government collaboration is the Better Rules initiative, which examines the way we develop regulation to ensure it’s more easily implemented as part of government’s digital services.

Callaghan Innovation is a Crown entity of the New Zealand government that has the task of making New Zealand businesses more innovative. In April 2019, Callaghan Innovation launched ScaleUp NZ, a free online platform, to help better connect start-ups with investors, mentors and other businesses. Callaghan Innovation currently awards NZD 37.5 million in R&D Project Grants to support early-stage capital - targeted at firms with small R&D programmes. The NZD 8 million Pre-Seed Accelerator Fund co-funds domestic universities as well as Crown Research Institutes to support start-ups working on projects aimed at the commercialisation of science and research. Finally, Technology incubators and repayable grants provide direct support to enable deep technology based businesses to scale up and commercialise their ideas.

 

Source: See Table 33.4.

Statlink

Table 33.4. Definitions and sources of indicators for New Zealand's scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	Estimated lending to SMEs. There is a break in this series from 2016 when a new bank balance collection was introduced by Reserve Bank of New Zealand.	Reserve Bank of New Zealand
Outstanding business loans, total	Lending to the resident business sector by registered bank and non-bank lending institutions. Excludes agriculture, finance and insurance, general government, household and non-resident sector loans.	Reserve Bank of New Zealand
Non-performing loans, total	Non-performing loans as a percentage of total lending. Includes impaired and 90-days past due assets.	Reserve Bank of New Zealand
Non-performing loans, SMEs	Non-performing SME loans as a percentage of total SME lending. Includes impaired and 90-days past due assets.	Reserve Bank of New Zealand
Interest rate, SMEs	Base interest rate for new overdraft loans for SME non-farm enterprises.	Reserve Bank of New Zealand
Rejection rate	Percentage of SMEs (firms with 6-49 employees) requesting debt finance that were not available or did not receive it on reasonable terms.	Statistics New Zealand
Non-bank finance
Venture and growth capital (seed and early stage)	Total investment in seed and startup ventures. Startup Magazine is a magazine for angel investors. It uses information from the Young Company Finance Index.	Startup Magazine Published by PwC pwc.co.nz/startupmagazine
Other indicators
Payment delays, B2B	Average number of days it takes entities to pay for goods and services after payment is due, reported quarterly (averaged across all quarters for 2018).	Data source: illion Commercial Bureau, New Zealand Late Payment Quarterly Analysis.
Payment delays, B2B SMEs	Average number of days it takes entities (firms with 1-49 employees) to pay for goods and services after payment is due, reported quarterly (calculated on the basis of the average of the three groups: 1-5, 6-19 and 20-49 employees - and the average of the four quarters for 2018).	Data source: illion Commercial Bureau, New Zealand Late Payment Quarterly Analysis.
Bankruptcies, total	Personal insolvencies including creditor and debtor applications, excluding no asset procedures and summary instalment orders for financial years.	Ministry of Business, Innovation and Employment, Insolvency and Trustee Service

References

Business Demography tables - http://nzdotstat.stats.govt.nz/wbos/Index.aspx

Business Operations Survey - http://archive.stats.govt.nz/infoshare/

Credit conditions survey - https://www.rbnz.govt.nz/statistics/c60-credit-conditions-survey

Financial Markets Authority, Peer-to-peer lending and crowdfunding: sector snapshot 2018 - https://public.tableau.com/profile/fmaadmin#!/vizhome/Reg_returns_final_version_0/Story1

illion, New Zealand Late Payments March Quarter Analysis 2018 - https://www.illion.co.nz/wp-content/uploads/2018/09/Late-Payments-NZ_Q12018.pdf

illion, New Zealand Late Payments June Quarter Analysis 2018 - https://www.illion.co.nz/wp-content/uploads/2018/09/ION_Late_Payments_June_Quarter_2018_Final.pdf

illion, New Zealand Late Payments September Quarter Analysis 2018 - https://www.illion.co.nz/wp-content/uploads/2018/11/ION_Late_Payments_September_Quarter_2018.pdf

illion, New Zealand Late Payments December Quarter Analysis 2018 - https://cdn2.hubspot.net/hubfs/3983882/Late%20Payments%20NZ/ION_NZ_Late_Payments_DecemberQuarter2018.pdf?__hssc=55277940.9.1558928215964&__hstc=55277940.4704a01376fcab2082c17b6c34d17d45.1556832132627.1558559317891.1558928215964.4&__hsfp=3812411838&hsCtaTracking=eb590ae7-8f50-4567-a9a0-c0a9e6de628e%7Cee83bb47-4223-466b-b525-c50aaf2ff66d

illion, New Zealand Late Payments December Quarter Analysis 2017 - https://cdn2.hubspot.net/hubfs/3983882/illion%20Content%20Activity/Late%20Payments%20(NZ)/Late_Payments_NZ_December_Quarter_2017.pdf?__hssc=117562838.612.1558928215964&__hstc=117562838.4704a01376fcab2082c17b6c34d17d45.1556832132627.1558559317891.1558928215964.4&__hsfp=3812411838&hsCtaTracking=dbac7bb2-1186-4b43-97b3-3d31e15f0d24%7Cef8a82b7-433b-464b-98f4-13707cb9518bStartup

New Zealand Insolvency and Trustee Service, Insolvency Statistics and Debtor Profile Report: 1 July 2017 to 30 June 2018 - https://www.insolvency.govt.nz/assets/pdf/Statistical-Data-Reports/ITS-Statistical-Data-Report-17-18.pdf

New Zealand Venture Capital Association & Ernst and Young, New Zealand Private Equity and Venture Capital Monitor 2019 - https://www.nzvca.co.nz/wp-content/uploads/2019/05/NZ-Private-Capital-Monitor-Report_FINAL_WEB.pdf

PricewaterhouseCoopers, Startup Investment New Zealand Magazine: April 2019 - https://www.pwc.co.nz/pdfs/2019pdfs/startup-magazine-2019.pdf

Reserve Bank of New Zealand, Financial Stability Report: May 2019 - https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Financial%20stability%20reports/2019/fsr-may19.pdf?revision=47e0d60a-bdca-4fbb-bddc-2ad9f20a4b2d