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RBA discusses small business contributions

RBA discusses small business contributions

(5 June 2012 – Australia) As part of its first business finance roundtable, the Reserve Bank of Australia (RBA) found small businesses were hit harder by the global financial crisis and found it harder to recover than larger businesses in Australia. Representatives from banks and federal government agencies, as well as small business owners and academics, attended the event.

The RBA said business conditions over the past two years had been weaker for small businesses than their larger counterparts. Tighter lending requirements since the GFC and the reassessment of risk by banks had disproportionately affected smaller businesses, compounding the problem.

''Following the 2008 downturn, there was a less durable recovery for small businesses than for large businesses; small business conditions only briefly returned to average levels in early 2010 before being below average for most of the following two years,'' the RBA said in a discussion paper published after the event.

''Another important issue is whether the flow-on effects from the mining boom are mainly benefiting larger businesses.

''Mining-related projects often demand greater scale than smaller businesses can easily provide, and require considerable upfront expenditure to bid as a result of the significant cost of complying with miners' accreditation and workplace health and safety requirements.''

The pro-vice-chancellor of research at the University of Newcastle, Scott Holmes, said that banks' lending models for small businesses were too stringent and relied heavily on things such as security. This meant that once house prices stop appreciating it was harder for small businesses to get extra liquidity.

''Basically, 80 percent of bank loans to small firms are based on securities and guarantees, which means only 20 percent of loans are actual business loans,'' he said.

''So if you haven't got that appreciation value of your personal assets, then you can't provide the required security.''

The roundtable called for an agreed definition of small business to help provide a clearer picture of the sector's contribution to Australia's economy and to better understand the conditions and challenges it faces.
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