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For small business owners, a lot is riding on the Royal Commission outcomes (2/2)


Below is the second instalment of a two-part series into the potential impacts to the SME lending landscape following the Royal Commission's report.

Gaining trust for SME lenders

It’s crucial that Australian consumers, and the small business sector, have faith in their financial institutions.

Beyond the potential regulatory changes foreshadowed by the Royal Commission, the key component for SMEs is access to money.

If they are rejected by a bank due to tighter lending restrictions, it’s important that they know where to turn. For many SME owners, who have been rusted on to their banks for business lending, being aware of the options will involve an education process.

ASBFEO’s Kate Carnell has flagged that she’d like to see a scenario where if the banks can’t fund, they give a list of alternative funders for business owners to seek out.

Already, Scottish Pacific gets many referrals from banks who can’t provide funds for SMEs, and we’d see this continuing after Royal Commission.

From our perspective, Scottish Pacific has been providing secure working capital to Australian SMEs for over 30 years, throughout all economic conditions.

This sustained position of being able to lend in all conditions and throughout the life of a business, is done on sound and robust lending standards.

We are always improving how we do things, to be able to help as many businesses as possible. So there has been no change required as a consequence of the Royal Commission.

It’s worth noting that most of our facilities are not repaid by our clients, but by their customers – this area is where we spend a lot of time on due diligence.

Changing SME lending landscape

Many SME owners have stayed with the banks out of habit. Now, they may be more likely to seek other credible funding options.

Choice is good for SMEs when it comes to funding, as long as they are making informed choices and are aware of the benefits and risks of the products now available to them.

In the short-term, there will be a big push by new and smaller players, to capitalise on the banks being distracted. In the long-term, a few new names may appear that specialise in servicing business owners, but the banks will adapt.

The other major impact, as I’ve already indicated, is that SMEs will have to move away from reliance on property-secured lending.

The banks’ risk-weighted appetite, focused on real estate security, limits the lending available to SMEs.

Our SME Growth Index research shows fewer than 10% of SMEs want to use property to secure their business loans. Almost 80% would prefer a loan secured against non-personal assets.

Given that so few want to use property as security, and their funding options in future will be limited, any supporter of the important SME sector should be helping educate business owners about all the viable options they have available to them.

Scottish Pacific is working with ASBFEO to create a guide for SME lending, which will help business owners to understand the broad range of small business finance options and to work out which options suit their needs.

This guide will be a valuable tool for advisers, such as brokers and accountants, to get a better understanding of the growing SME lending market and to help them serve their clients’ needs.

Part 2 of a 2 part series. To read part 1, click here

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