During the past week the Small Business Ombudsman, Kate Carnell, highlighted the issues facing small business when seeking loans.
In an interview in the Financial Review, she said “as much as Banks will say we have plenty of money to lend and they have, the problem is the Banks have a huge risk aversion and are assessing small business loans under the same criteria as the National Consumer Credit Act”
Excessive Documentation & Security
Kate also pointed out that Banks “continue to require excessive documentation before granting loans and that security in the form of property or cash was still required for most loans to protect Banks”.
Extreme Caution & Conflicting Messages!
Whilst the havoc & uncertainty caused by COVID-19 has naturally required a higher degree of due diligence by the Banks, in our experience the pendulum seems to have swung too far.
We deal with many good Bankers but even they seem to be struggling with the increased demands placed on them by those setting credit policy.
On the one hand, the Banks economists seem to be saying the future outlook is generally positive, however those setting the lending policy seem to be taking a much darker view!
Two Different Realities in Operation!
The end result from what we are seeing is:
- More documentation is being sought
- Loans are being declined and/or taking far longer to get approved
- Business owners are left confused and frustrated
- Bankers no longer have confidence in what is a deal
A Self-Fulfilling Reality!
Our concern is that if business owners are unable to access the finance they need in a timely manner, we could see:
- Higher loan defaults
- Business failures
- The economic recovery being stifled
In essence, the very thing the Banks are seeking to avoid, will become a self-fulfilling reality!
Economy, Infrastructure Spend & SME’s
This is not about taking undue risks as that is not in anyone’s interest. It is however about recognising:
- Relative to the world the Australian economy is in good shape
- That the huge infrastructure spend by Federal and State Governments will have positive flow-on effects to the rest of the economy
- The vast majority of business owners are prudent and do not take undue risks as they have everything on the line
Balancing Risk and Commerciality
Somewhere in this, commerciality needs to apply if we are to avoid the economy falling off a fiscal cliff into a completely avoidable recession.
Access to finance in a timely manner and on commercial terms is critical if we are to successfully navigate our way out of COVID-19.
If you would like to learn about how to access the finance you need don’t hesitate to give me a call.
