A SENATE inquiry into access to finance for small businesses has found that, while there are signs of recovery in lending to small business, banks are still cautious, particularly when it comes to the property sector.
A SENATE inquiry into access to finance for small businesses has found that, while there are signs of recovery in lending to small business, banks are still cautious, particularly when it comes to the property sector.
“Looking at new lending by purpose, the slowdown in credit provision to small business borrowers appears to be concentrated in loans for the purchase of real property,” the inquiry found.
Credit for the purchase of real property decreased from $4.3 billion in 2008 to $3.2 billion in 2009, while credit for wholesale finance increased from $0.3 billion to $0.6 billion during the same period, and credit for purchasing plant and equipment went from $3.3 billion to $4.8 billion.
“Banks are very wary of lending to commercial property because commercial property prices have fallen, as they always do during an economic downturn,” chief executive of the Australian Bankers Association, Steven Münchenberg, told the inquiry.
“I think the banks are also remembering the early 1990s when they got into quite a bit of trouble with being overexposed to commercial property during the recession then.”
The Senate’s inquiry findings back up a study by the Reserve Bank earlier this year in which the overall conclusion was that: “Small business in most industries have had tighter but still reasonable access to funds throughout the financial crisis, with property companies being a notable exception.”
The Chamber of Commerce and Industry WA’s SME initiative, Small Enterprise Network, said the inquiry made some strong recommendations but had missed the mark when it came to addressing the challenges faced by employers needing to borrow money.
“The inquiry has supported the view of the WA SEN – that competition in the finance sector is the best way to reduce the cost of loans. However, the inquiry fails to make recommendations needed to create a better system for borrowers,” SEN manager Andrew Canion said.
The inquiry made recommendations that the Australian Bankers Association meet with small business to develop a code of practice for lending to SMEs.
“By better understanding and catering for the needs of SMEs, banks would benefit commercially. For SMEs the benefits would enable them to do business more easily,” PriceWaterhouseCoopers partner Gregory Wills said.
The inquiry also recommended banks abolish exit fees on variable-rate loans, retain the ‘four pillars’ policy, and that the Australian Competition and Consumer Commission, Australian Prudential Regulation Authority and the RBA provide a joint annual report to parliament on competition in the retail banking market in Australia, and the provision of finance to small business.
