Opinion: New Zealand has made real progress in building a venture capital market for high-growth technology firms, which is a genuine success. But most businesses will never raise venture capital, and the OECD’s latest economic survey suggests they are still left navigating a finance system with too little between equity investment at one end and property-backed bank lending at the other.
That is the missing middle in New Zealand’s business finance system.
Successive governments have helped strengthen the venture-capital market, including through Elevate NZ. The OECD says venture capital grew from about NZ$50 million in 2015 to nearly $600m in 2024. This is particularly relevant for high-growth technology firms, which often cannot rely on bank debt because they lack collateral, earnings and predictable cash flow. Venture capital helps fill that gap.
But most small and medium-sized enterprises (SMEs) are not suitable candidates for venture capital. They are manufacturers, trades businesses, food producers, service firms and regional employers trying to grow steadily, improve productivity, hire staff, and reach new customers.
These firms need working capital, affordable debt, invoice finance, equipment finance, customer-funded growth strategies and practical support to expand without giving up equity or putting personal assets at risk.
As the OECD says, New Zealand’s weakness is in this middle ground. The main banks prefer home lending. Their rejection rates of SME loans are high. Alternative finance is scarce and expensive, with interest rates of 12-13 percent or more not uncommon. Many entrepreneurs initially fund businesses through savings, bank mortgages, and family-and-friends finance.
This is a problem if New Zealand wants to increase its productivity. Venture-backed firms are important, but productivity also depends on thousands of smaller firms becoming better managed, better capitalised, more digital and more export-capable.
The Covid period exposed the problem. During the pandemic, the government encouraged firms to borrow to survive and guaranteed much of the risk through the Business Finance Guarantee Scheme. Yet many firms still found banks asking for personal guarantees or property-backed security.
Banks had their reasons. They are designed to manage risk, not act as development agencies, and as Treasury warned, limiting personal guarantees could reduce credit for smaller firms. The episode revealed a deeper weakness: even with the state-shared risk, many SMEs still faced a finance system that pushed too much risk back onto owners’ personal balance sheets.
The OECD’s 2026 diagnosis suggests that weakness has not disappeared. Covid did not create the problem. It exposed it.
Entrepreneurship policy also blurs the distinction between different kinds of firms. A start-up is not always a venture-backed technology company. An SME is not always a lifestyle business. A high-growth firm is not always suited for equity finance. A business can be ambitious and economically valuable without attracting venture capital.
The OECD says banks’ business lending was $128b in 2024, or 18 percent of total lending. In Australia, business lending comprised 30 percent of total lending. New Zealand’s banking system is still dominated by mortgage lending, while high SME lending spreads reflect limited competition and the prioritising of other lending.
The problem is that governments have done more to strengthen the venture capital end of the finance ladder than to support the debt, cash flow, and capability needs of most SMEs. New Zealand needs a more versatile finance ladder.
The OECD says debt markets could be deepened through pooled SME loan securitisation, standardised loan-level data, a credit register, and a streamlined private placement regime. Those reforms could give SMEs more ways to access finance, rather than forcing them to rely so heavily on property-secured loans.
The OECD also notes there is still no dedicated national SME financial literacy programme. New Zealand needs practical support for bootstrapped growth with capability development focused on pricing, margins, cash conversion cycles, staged hiring, supplier terms, customer-funded development and knowing when not to raise external capital.
Other tools should be considered: revenue-based finance, export working-capital guarantees, matched loans for digital adoption, and procurement policies that help SMEs win early customers.
The report highlights that supporting entrepreneurship requires more than just growing venture capital. New Zealand has strengthened the top rungs of the start-up finance ladder. The next task is to strengthen the middle rungs, where most SMEs actually stand.
A country that wants more productive firms cannot rely only on venture capital at one end and property-backed bank lending at the other. It needs finance suited to firms that will never raise venture capital but still create jobs, exports, and regional growth.
