This week we hear from two leaders on the big 4 banks, discussing whether they are becoming redundant to small business.
It is becoming increasingly challenging for small and medium enterprises to secure bank finance as rejection figures are on the rise.
An analysis of business loans by financial comparison site Mozo.com.au has found staying loyal to the Big 4 banks could cost you thousands of dollars in unnecessary interest each year. Staying with a Big 4 bank could cost you $6,007 in extra interest on a $250,000 business loan over 5 years.
With this information becoming clearer with new studies and research, is it true to say that the big 4 banks are becoming less and less relevant for SMEs?
Leo Tyndall, CEO and Founder Marketlend
In the wake of the Royal Commission we’re seeing a tightening of finance for SMEs with even long time customers being turned away for loans. The issue is bigger than the Royal Commission though. For years, banks have taken too long and required too much, like property collateral, from SMEs. Innovations like marketplace lending are giving SMEs transparent and prompt access to.capital when they need it. This is the revolution. Hopefully banks will learn from this, but we might be waiting a while
Stephen Barnes, Principal at Byronvale Advisors Pty Ltd
I would say that the term ‘redundant’ may not be so appropriate but certainly through a number of factors the ‘Big 4’ may be less able to meet the needs or timeliness requirements of small business. A large number of small business owners need to use personal assets, usually the family home, as security for loans. With falling house prices these business owners’ capacity to borrow is diminishing. I recently contacted a ‘Big 4’ CEO directly regarding a refinancing transaction that had taken almost a year, during which the Banking Royal Commission had occurred. The CEO responded within half an hour, and apologised and said “The world has changed, and we are probably over shooting here but our front line (in all banks) are scared. Scared they expose the banks and themselves to risk. The rules on responsible lending are vague and complex. The rules do require us to take reasonable steps to prove any loan is responsible. Hard to define “reasonable” and we probably get that wrong a few times.” There has also been the rise of the low-doc non-bank lenders that look at cashflow rather than security and have a fast turnaround on approvals. These factors combined may mean the ‘Big 4’ may not be meeting the needs or timeliness requirements of small businesses.