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Small businesses remain reluctant to access new loans, with onerous application and collateral requirements among the biggest impediments, says the Reserve Bank of Australia.
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Small businesses should have easier access to finance: ASBFEO, RBA
18 March 2021
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The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, has come out in support of RBA assistant governor Chris Kent, who has urged credit providers to make it easier on small businesses looking to access finance.
In a speech to the Australian Finance Industry Association, Mr Kent said that, while business confidence is up, small businesses remain reluctant to take out new loans as a result of stringent lending requirements enforced by banks and other credit providers.
Mr Kent said that interest rates were not the only obstacle facing small businesses seeking credit. The application process and collateral requirements, particularly for companies early in the business life cycle, were often cumbersome and challenging to meet.
“For example, banks have required a greater degree of verification of borrowers’ information, and banks have been more cautious about lending to new business customers and to the sectors hit hardest by the pandemic,” Mr Kent said.
“Indeed, small businesses have reported that the price has not been the biggest impediment to accessing finance over the past few years.
“For instance, entrepreneurs in our small business panels have noted that access to finance for start-ups is a challenge. Banks often have substantial collateral requirements, and the process for getting finance is lengthy and onerous.”
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The criticism was backed by Mr Billson, who on Wednesday said that he welcomed further scrutiny of the challenges faced by small businesses looking to access finance.
“Mr Kent’s comment that access to finance for small businesses has been a long-standing challenge, and is now tighter than before the pandemic, is correct,” Mr Billson said.
“I support Mr Kent’s plea to banks to take a different approach to small business borrowers, given that even under the existing responsible lending laws, banks are not obliged to apply the same serviceability requirements to small businesses that need to be applied to households.”
In addition to welcoming criticism of banks’ serviceability requirements, the small business ombudsman also stood by Mr Kent’s comments on the burdensome application process faced by small businesses trying to secure credit.
“I also share Mr Kent’s concerns regarding the banks’ lengthy and onerous process to secure finance, including substantial collateral requirements,” he said. “Of course, we need to strike the right balance, but any move to loosen onerous restrictions on access to finance for small business would be positive.”
Mr Billson also pointed to the end of government stimulus, such as JobKeeper’s expiry at the end of the month, as further evidence of the need to find new ways to support small businesses in their efforts to secure finance.
“The RBA has noted it expects business failures to rise as government support measures are phased out,” he said. “This highlights the critical need for small businesses to have greater access to finance, to provide the cash flow necessary to get through the coming months.”
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