13 October 2016
5 min read
Starved of credit?
At Banjo, we share in the vision of small businesses, we love hearing exciting business ideas and inspirational stories of business success. Most of all, we like to see people out there pursuing their passion. There are 2 million small businesses in Australia employing around 49% of workers and representing some 97% of all businesses in Australia. These stats make it clear that we all benefit if small business, the backbone of our economy, has the support and environment to develop and grow their businesses.
So we were perplexed that now, 7 years after the GFC, small businesses globally remain starved of credit and Australia is no different. One issue raised frequently in the small business sector is; ‘why is it so hard to get the funds we need to grow our business?’
Of 2 million SME’s (Small to Medium Enterprises) in Australia, 51% have no lending product at all and they are typically funded with family loans or credit cards at rates closer to 25% without generally adjusting pricing to reward lower risk borrowers.
Funding for SMEs globally has become constrained during the recession and stayed at these low levels since: it is generally more profitable for traditional lenders to make a $2m loan than a $50,000 one.
Post GFC traditional lenders have grown their personal and home loan credit books at much faster rates than their small business books. This has been attributed to a number of factors such as the relative riskiness of SME loans to housing loans, greater capital requirements for SME compared to other forms of lending and finally reduced competition amongst business loan providers post GFC.
Submissions to the recent Financial System Inquiry[i] stated structural issues such as information asymmetry, regulation burden and the taxation system also as possible contributing factors to the lack of business finance provision to SME’s.
Learning from overseas
There are a number of initiatives being implemented internationally aimed at addressing the same issues Australian SME’s face accessing finance, and we could consider some of these as roadmaps for our creation of a better SME world.
In the UK, high growth businesses with low levels of fixed assets also have difficulty accessing credit. The UK Government launched a number of initiatives to support small business following a 2012 Parliamentary Review[ii] such as:
- Competition – under new legislation implemented by the UK Treasury last year, banks are instructed to help small and medium sized companies find new sources of finance if they have turned them down for loans. Santender and RBS have entered into partnership agreements with alternative financiers as evidence of this legislation in action.
- Support – the British Business Bank provided funding and guarantees to providers of finance for SME to generate new lending and investment.
- Information – launch of the SME Credit Portal[iii] following collaboration amongst industry financiers to develop price comparison tools so business owners can understand the complex web of products and tailor appropriate products for their business
- Transparency – positive credit reporting regime implemented by a voluntary agreement with major lenders to publish bank-by-bank lending.
In the US, two initiatives in addition to those above caught our eye:
- Mentoring – the Small Business Administration has partnered with a national not-for-profit organization called SCORE to provide small business mentoring services to business owners across the country.
- Focus – Small Business Saturday is an American shopping holiday held on the Saturday after US Thanksgiving during one of the busiest shopping periods of the year. Small Business Saturday encourages holiday shoppers to patronise brick and mortar businesses that are small and local.
Call to action
At Banjo, we take an active role in advocating for small businesses in Australia. SMEs are the job creators and innovators we need to keep the Australian economy growing.
Banjo introduces a new online marketplace lending platform built by Australian banking experts who simply thought there must be a better way to provide unsecured loans to SMEs. We want to make it easy so business owners can get on with what they do best!
Increased competition in Australia will be good for business.
Recent calls by industry to reduce the red tape burden on SME’s by automating BAS and income tax returns are positive initiatives. We support the government taskforce working to explore the potential of technology and digital platforms joining with Government to make it easier and more streamlined for businesses to interact.
Over the coming 12 months, the team at Banjo will place their shoulders to the wheel to work with Government, Industry Bodies and the Banking industry to explore ways in which we can all work together to create the right environment for small business to flourish in Australia.
Imagine being able to just get on with the business of running your business!
Sounds just brilliant to me.