Prospa's payroll tax challenge
Sydney's CBD: Beau Bertoli would like his fast-growing FinTech company to stay local
It is fitting that the first High-Growth Focus interview, a feature that will appear every Wednesday in InnovationAus.com, is with a FinTech company that offers small business loans online. Prospa services some of Australia’s two million small business owners, so that they might experience some high-growth for themselves.
Prospa, which has already provided over $70 million in loans, began life less than four years ago with fewer than 10 employees and has grown to 55 staff and counting.
While maintaining an office space to accommodate a fast growing team is one constant business struggle, joint-CEO Beau Bertoli says, it is the NSW government payroll tax that is its key challenge and which universally makes it difficult for businesses in a fast phase of growth.
He wants to see an initial five-year exemption from the tax for startups, so that they can invest in employing more people when it matters the most.
In sitting down to talk about this and more with Mr Bertoli, it became clear that Prospa’s roots as a FinTech company give it much more than just a data-perception of what small businesses need. The company understands growth, and the importance of a small businesses ability to scale-up is something Mr Bertoli is very familiar with.
Tell me a bit about what Prospa does, and where you are up to in your growth cycle?
Beau Bertoli: As an organisation, we’ve been trading now for three years, and heading into the fourth.
We basically set out to stay on top of a real problem in the finance industry, in that small businesses [has difficulty getting] access to finance in the Australian market. It’s a global problem – a lot of advanced economies have a similar situation – where the banking system is just not set up to lend money to small enterprises.
In Australia we have a situation where two million small business owners represent about 46 per cent of all economic activity. If such a fundamental part of our economy is not able to access finance, how can it grow and operate and contribute more to the economy? Every business uses finance to grow.
We saw a real opportunity to close the gap that banks have never been able to fill, in a digitally-enabled manner. Customers can land on our website, put their information in and really quickly get an answer for a small business loan application.
In the past few years we’ve grown from a team of about ten people to almost 55. We have around 1200 partners who offer our loans to their customers, and so far we’ve written about 7000 loans. So it’s been a great ride for us.
What have been the biggest challenges with growing so quickly?
Beau Bertoli: There have been a number of challenges, both business and market challenges.
When we launched the product, there was very little awareness of the fact that you could borrow money from anywhere other than a bank. So we really had to educate the market, not just for our own credibility, but also for the market to see that it’s ok to borrow from an institution that’s not a bank.
From a business perspective then, one of the biggest challenges is office space. Because we’re growing so quickly, trying to find the right office for today, and the next few years is a really tricky proposition. We’ve got 50 people today but over the next few years that could grow to 200.
This has become a rather large business challenge. We are Australian owned and Australian-based and so we want to stay in the [Sydney] CBD. And that’s been a bit of a fun challenge.
You are largely backed by US and European investors. Will you always remain an Australian company? Are there any plans at this stage to grow overseas?
Beau Bertoli: At this stage, we are very much Australian-focused. The reason for that is the lending gap in the Australian market is somewhere between $10 billion to $20 billion.
So there’s an enormous market opportunity for us right now, locally. We are building the business model so it is a scalable platform, so that if we wanted to look internationally then that is something we could consider. But at this point of our business evolution – certainly for the next year or two – we are very much domestically-focused.
What role does government have in developing high-growth companies like Prospa? What changes would you like to see that would enable high-growth?
Beau Bertoli: One of the biggest costs to a high-growth company is people, and in the early stages of setting up, something like the NSW payroll tax is a real hindrance to a business. We hit the payroll tax threshold about 18 months ago and all of a sudden we’re up for another five or six per cent in tax flow to the state government. It makes us question every time we grow.
It’s a very tricky tax on businesses who are in a fast phase of growth. I understand why they need it, but I feel like, in the first five years of the business we should have the opportunity for an exemption from payroll tax so we could reinvest into more people.
With our growth in staff, and we’re recruiting for another 15 roles at the moment, I’ve always got payroll tax at the back of my mind, slowing us down.
Generally, the red tape on small businesses is excessive and it doesn’t need to be this way. The government is trying, but there are a lot of things they need to look at to make life much easier for small to medium businesses to survive.
As we’re growing faster and faster, the last thing I want to do is hire compliance and regulatory people. I want to hire more product and technology people who can help us maybe launch internationally. That’s where I want to spend my money and that’s where I think government could support us better.
What tech innovation will make a difference to your business in the coming years?
Beau Bertoli: There are a lot of different technologies coming our way, and we have got a great opportunity to take advantage of that.
We were very fortunate to be born in the Cloud, and we place data and analytics technology at the heart of our business. You won’t see a single server in our office.
We are trying to be at the forefront of analytical innovation – and really understanding what are the latest trends, tools and ways to look at data.
We live in a world where we have far too much data to crunch, so we need to be very selective and smart about the data that matters. And to analyse that data in a far more effective manner is of really high value to us going forward.
We are also keeping a really close eye on the Internet of Things as a potential data point.