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SME lending volumes pressured

SME lending volumes pressured

(1 February 2019 - Australia) Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has called on the Hayne royal commission, policymakers and regulators to work harder to get small and medium business (SME) on a firmer footing against the banks or risk a “credit squeeze” in the A$300 billion SME sector.

Ms Carnell said despite the royal commission, the banks were still shying away from making real commitments to small business customers, including in their revised code of conduct, which gave them lots of “get-out ­clauses”.  “If we don’t fix this, it is actually heading toward a credit squeeze for small business,” she said. “Hayne didn’t have time to delve into quite complex (SME) cases … “What he did say is that a major protection should be the banking sector’s code of conduct. “Although it (the revised industry code of conduct) is better than the last one, we believe the code in its current form is undermining some of the work.” Ms Carnell said banks were also more risk-averse on loans and providing “a lot of rhetoric” rather than action. “What I’d like to see is some confidence being put back into the system in terms of how to lend to small businesses appropriately and fairly.”

The royal commission heard several disturbing small business cases, including one in which Westpac didn’t explain to a pensioner with multiple debilitating health conditions the risk of losing her house by guaranteeing her daughter’s business loan. The federal government seized on the business lending issue in November when it announced measures to bolster access to ­capital for the sector. They included a A$2 billion Australian Business Securitisation Fund and a separate business growth fund. Analysis by the Australian Prudential Regulation Authority (APRA) highlighted moderate business credit growth through 2018, which picked up to 4.5 percent by Q4 2018. NAB’s head of business banking Anthony Healy admitted banks had “more to do” in improving their standing with small business and had recently conducted 13 “listening forums” in rural and regional communities. “We are open to policy ideas that support the sector and accelerate the creation of new business and opportunities. We fully supported the interim findings of Commissioner Hayne in relation to SMEs and will continue to engage with government and other regulators to ensure that capital is available to support this important sector. We know we will earn trust through listening and taking action for our customers and by making banking easier and simpler and more transparent.”

A newly released report by Judo Capital shows a funding gap of A$83 billion confronts small and medium business as they grapple to access finance. Judo commissioned a survey by East & Partners of more than 1750 business owners with current debt facilities in place which found 50 percent of small enterprises could not access credit easily. That figure was 30 percent among medium-sized businesses. “These findings confirm what we understood to be true — SMEs looking to borrow money have lost faith in the incumbent banks to provide the funding they desperately need and deserve,” Judo CRO Jacqui Colwell said. “Small businesses represent 97.5 per cent of all businesses operating in Australia and employ 44 per cent of people in the private, non-financial sector, so it is critical that we address issues arising from the banks dealings with SMEs. SMEs are now looking to the Commission’s final report and recommendations to address the reasons for their loss of trust in the incumbent banks.” Judo’s survey also showed that nine out of ten business owners said they would prefer to consult colleagues or friends for lending advice over a bank.

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