CCIQ calls for better access to banks for small business loans
The Chamber of Commerce and Industry Queensland (CCIQ) has called on financial institutions to make it easier for small businesses to get loans.
In a submission to the Financial System Inquiry, CCIQ said there had to be better access to finance to cement future productivity and competitiveness.
CCIQ General Manager of Advocacy Nick Behrens said the current level of competition in small business lending provided inadequate access to finance for small businesses to invest, grow and employ.
“Major banks have become more risk adverse following the global financial crisis and continue to allocate a higher proportion of credit to housing mortgages, lessening competition in the small business market,” Mr Behrens said.
“As a result, small business borrowing costs are increasing due to higher interest charges, lower loan-to-value ratios, stricter collateral, and restrictive loan conditions.
“Given the majority of small businesses rely on the major banks to source credit, it is vital that Australia’s financial system addresses these challenges.”
Mr Behrens said CCIQ’s submission to the Financial System Inquiry Interim Report recommended initiatives to increase competition in small business lending.
“Levelling the playing field for our regional banks, lowering the capital requirements for small business loans and implementing cost-effective mechanisms for bank-switching must be part of the solution,” he said.
“The Federal Government should also facilitate new market entrants, including foreign-owned banks and non-bank lenders to provide effective competition to the existing large banks.”
Mr Behrens said one of the policy options in the Inquiry’s Interim Report was to establish a new database for small and medium business finance.
“A new SME finance database is a positive move that will address information gaps between business borrowers and lenders,” he said.
“We suggest this new database expand on the ATO’s existing small business benchmarks and incorporate credit history from lending institutions to reinforce SME credit worthiness.”
Mr Behrens said that complementary initiatives were also necessary, including education and training to improve skills among business lending managers.
“Genuine change to the traditional model of SME lending requires combining better information with better relationship banking,” he said.
“Business banking managers must understand small business needs and develop an effective ongoing relationship.”
Mr Behrens said a separate code of practice for small business would go a long way toward improving lender behaviour, with guidelines that allowed lenders to be more accommodating to small business operational changes and future strategies.
“While the financial system has a responsibility to manage lending risk, it equally has a responsibility to allocate credit efficiently to productive uses, especially innovative small and medium businesses,” he said.
CCIQ's submission also called on the Inquiry to consider a credit guarantee system for small and medium businesses.
“There is a valid role for government to play in underwriting to some extent small business access to finance given our future economic growth is intrinsically linked to the performance of these businesses.” Mr Behrens added.
The Financial System Inquiry will establish a direction for the future of Australia's financial system. The Inquiry will lay out a 'blueprint' for the financial system over the next decade.