The Small Business and Family Enterprise Ombudsman, Kate Carnell, has floated the idea of a Government-backed approach to small business lending, modelled on the British Business Bank, to improve access to finance for SMEs.
Kate Carnell told Dynamic Business that the tightening of prudential requirements by APRA and other regulators globally, following the Global Financial Crisis, meant it has become more profitable for banks to lend against properties.
“Simply put, banks make less money from lending against strong business cases, good cash flows and so on,” she said. “Consequently, banks are increasingly not lending to people seeking to buy, expand or invest in a small business unless they have bricks-and-mortar security.
“This is impacting our economy, job creation and so on, so it would be dangerous for Government to do nothing about this problem. If we want small businesses to be the engine room of the economy, we need more capable business people to be able to access money to invest in businesses.”
Carnell said she has asked the Productivity Commission to explore the extent to which prudential risk weighting standards and capital requirements have had unintended consequences on lending to small businesses.
Asked whether alternative lenders are easing the pain for SMEs, Carnell replied: “Nobody is meeting the needs of the SME sector, although that’s not to say they’re not meeting any of the needs. Obviously private equity, venture capital and fintech are all playing a part. However, if I wanted to, for example, buy a franchise, I might be looking at possibly half a million to a million – but I’d still struggle to get a loan without property security.”
Carnell said the Government should consider an Australian version of the British Business Bank, which “like similar initiatives in Canada and parts of the US, support SME lending.”
“The British Government, through the British Business Bank, not only underwrites loans, it works with lenders to make it a more cost-effective exercise for various financial institutions, not just banks, to provide capital to small businesses,” she said.
“The British Business Bank can provide a government-backed 75 per cent guarantee against the outstanding facility balance, potentially converting a ‘no’ credit decision from a lender to a ‘yes’. It can also help small finance providers to tap institutional investors’ funds.
“Without a creative approach to small business lending in Australia we risk stifling growth, investment and employment.”