So the final report of the Royal Commission into Misconduct in Banking has been published.
Australian SMEs / Small to Medium Sized Businesses didn't get much.
Big 4 Bank share prices popped over 4% this morning. They will save a fortune on broker commissions. Remediation penalties were already priced in. Executive option schemes are worth much more today than yesterday.
This week's findings at the Financial Services Royal Commission reminds me of an insightful analysis by Alan Kohler in The Australian two years ago on what is holding business back and the negative effects on our economy. Sadly, our policy-makers seem to be disconnected from the reality of how to manage our economy.
“Banks are basically not lending to those who don’t own a house or are already fully committed on their mortgages, and those who are building houses for investors.
So they are going elsewhere and paying 10-15 per cent more in interest than the banks would charge, except they’re not.
It means the divide between the haves and have-nots (a house, that is) has never been this great.”
You may have been asked to enter into a General Security Agreement (‘GSA’) to provide security over your assets to a third party, before that party will advance you money, goods or services. What does this mean?
Every week, we come across companies that have given GSAs to banks or even car finance companies that are unlimited or unnecessary, resulting in the bank having too much security.
Usually, banks require real estate security as full collateral for a company loan/overdraft and often this involves the Directors' securing the loan on their personal property (ie registering a first charge over the property). A GSA is not required in this situation but some banks ask for one anyway and it is provided without discussion.
In the UK, P2P lending to business has developed rapidly with support from the British Business Bank, set up in 2013 by the UK Government. It has a mandate to facilitate up to $20bn of SME finance by 2019. Whilst bank lending to London’s SMEs plummeted 40% in 2015, the UK capital’s companies raised an estimated £350m through peer-to-peer lending in the same year, according to the British Bankers Association.
Credit guarantee schemes work. They overcome the clear risk aversion that affects our banking system when it comes to business loans by limiting the apparent downside. And taxpayers' money is put to work for a good return.
However, the Productivity Commission finalised a report on Business Set-up, Transfer and Closure in December 2015 which carries a serious amount of weight in Canberra. It concluded that there was no problem in accessing business finance in Australia despite submissions to the contrary by many reputable bodies.
At the recent Altfi Australasia Summit in Sydney, there was an impressive and quite rare gathering of over 400 finance people, investors, entrepreneurs, policy-makers and commentators from around Australia, the US and Europe.
One of the hot-button issues debated was the recent finding from the Reserve Bank of Australia on the Availability of Business Finance that:
Despite finance generally being available, growth in business borrowing has been relatively moderate, suggesting demand has been soft.
The debate about "Business" in Australia is polarised between on the hand seeming to include all business but really meaning "Big Business" and then when talking about SMEs meaning sole traders and very young start-ups.
“Business” is not one thing.
Just in time for the much anticipated Altfi Summit in Sydney next Monday, we’ve updated our business credit stats for the latest RBA figures. A picture is worth a 1000 words.
- 78% of Business Lending in Australia has been to the Big End of Town
- 37% has gone to….err…Finance & Insurance!
Oh and 45% has gone to ‘Other’ – time for a data rethink!
There remains a AU$60 billion shortfall in funding for Australian SMEs with the country’s four 'Big Banks'. Judo aims to fit this niche role, adapting a ‘Judo Strategy’ that targets the underbanked SME sector. Headquartered in Melbourne, the bank is expected to raise AU$100 million in funding by April.
In the UK, the Treasury Committee is currently holding an inquiry into SME Lending. The non-bank SME finance market in the UK is much more developed than Australia's. Government has been much more pro-active in encouraging the development of an SME eco-system.
Despite this, there is much more to do and the problems are very similar to ours. Australian policy-makers could fast-track much needed improvements in our SME finance market by studying closely the findings from this inquiry.
The latest figures on Business Lending from the Reserve Bank of Australiashow that only 10% of new loans in the year to September 2017 were made to SMEs, a growth rate of 4% pa.
Larger loans, mainly to corporates (although not clearly segmented by the RBA sadly), increased by 16% over the same period and accounted for 90% of new loans.