Prospa loan originations thumped by COVID-19

Prospa has reported in its financial year 2020 results that loan originations have fallen by 10.1 per cent on the prior financial year, from $501.7 million in FY19 to $450.9 million in FY20.

According to the FY20 results report, originations increased in the first three quarters of the year to $429.0 million for the nine months to 31 March 2020, an increase of 31.6 per cent on the prior corresponding period.

However, this growth was offset by a “deliberately restrained risk appetite”, with $21.9 million originated in Q4. This is an 88 per cent decline compared with the corresponding three-month period in FY19.

Loan originations recovered in June 2020, with $12.8 million generated in the month, up from $6.2 million in May and $2.9 million in April.

Prospa has attributed these results to the full rollout of products supported by the federal government’s Coronavirus SME Loan Guarantee Scheme, an adjusted risk appetite and improving customer demand.

“COVID-19 has continued to challenge the small-business economy, with additional lockdowns in Victoria and New Zealand during August 2020 impacting consumer and business sentiment,” the lender said.

“Prospa continues to proactively monitor conditions for potential impacts on its risk appetite and customer demand.”

The growth in loan originations in the first three quarters led to total revenue growing to $113.0 million for the nine months to March 2020, which is a 12.1 per cent increase on the prior nine-month period to 31 March 2019.

Growth in Q4 was offset by lower revenue stemming from lower originations and extended repayment terms for COVID-19-affected customers. This saw an overall increase in the lender’s total revenue from $136.4 million in FY19 to $142.1 million in FY20.

Commenting on these results, Prospa chair Gail Pemberton said: “Management have taken steps to ensure Prospa has the right foundations to manage the impact of COVID-19, and the business is well positioned as a result. 

“While momentum in FY20 slowed due to the impact of COVID-19 in the final quarter, we believe it will be restored as the economy and the small-business sector recovers.”

The group has seen a reduction in the number of customers needing support via full or partial deferral arrangements since it began offering COVID-19-related loan deferral packages.

As at 20 August, a total of 1,769 customers in Australia were on full or partial deferral arrangements.

This compares with 4,701 at the peak, 3,904 at 30 June, and 1,899 at 31 July, which Prospa said indicates a downward trend in customers needing support.

The lender typically provided full deferrals of six weeks or partial deferrals of 50 per cent of the typical repayment, with interest on the outstanding principal during the deferral periods being capitalised.

Prospa said it anticipates that it will apply to be a participating lender under the extended scheme. It received an allocation of up to $223 million when the scheme was initially introduced.

Providing an update on funding activity that has been supported by federal government initiatives, Prospa said that on 6 August, it allocated $63 million of the AOFM’s $90 million maximum investment amount to support the growth in its line of credit, back to business small-business loan, and back to business line of credit products, with the remainder to be allocated in FY21.

Reflecting on the results, Beau Bertoli, chief revenue officer, said: “At this critical time, it’s more important than ever that small businesses are aware of alternative funding solutions to support cash flow or invest in their future.”

Greg Moshal, Prospa CEO, acknowledged the difficult economic conditions the country is currently facing.

“Although there is uncertainty ahead, we know what a sound small business looks like. We have an understanding of how our customers trade during periods of suppressed economic activity. Coupled with financial scale, this allows us to quickly pivot to support the recovery across Australia and New Zealand,” he said.

[Related: Prospa joins FAST lender panel]