Since the Global Financial Crisis hit (GFC), banks have become a lot more cautious about lending to consumers, and the conditions have only become tighter after the last Royal Banking Commission. The guidelines that a consumer must meet to obtain a loan have become more stringent in an effort for banks to ensure they are lending responsibly, but the grey area between a small business and consumer lending has only darkened by these conditions.
Small business is responsible for 70% of employment and 40% of production in Australia, so it is imperative for the economy that they are able to grow and expand. For this, they must be able to access loans and finance, however small business loans are regulated by an industry code of conduct and the problem arises as more and more small business loans are being treated as if they were consumer loans due to the nature of business ownership, making it more difficult to secure credit.
Small business owners are known for applying for funds by means of credit cards, which is difficult to quantify because in many cases the business owner may be able to make claims to these expenses, depending on their structure. This however doesn’t solve the need for large amounts of credit, in which case banks often rely on creating a profile of the ideal small business client. They take into account profitability, debit servicing ration and credit history but in recent times they have also been reluctant to lend to business that can’t demonstrate profits of a minimum of $50,000 p.a.
Funds will improve
The good news is that the Government is going ahead with a $2 Billion Business Securitisation Fund, which will fund non-bank suppliers who will be then able to approve more small business loans, providing they meet their criteria. This also increases competition in the market, which creates a more level playing field for small business owners.
The Australian Business fund, which is essentially banks and superannuation funds coming together to support entrepreneurial small business and aspiring start-ups through an investment fund. The scheme was announced to have $100 million and is set to mature at $1 Billion.
According to Judo Capital and East & Partners there is a current gap in excess of $80 Billion in the small business lending market, and both schemes will go towards filling the gap by supporting the market, but won’t fix the problem overall.
CAAA Commercial Concierge have a specialist business banker, who is able to provide assistance and advice on small business loan applications. If you would like to find out about what options may suit your business, contact our Concierge team.