Call for small business govt loan backing

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National
Breaking News Business
Business

Date

November 6, 2013

AAP

Federal Small Business Minister Bruce Billson has rejected a suggestion that the government should guarantee loans for small businesses to foster growth in the sector.

However the minister has questioned why access to finance remains a problem for small and medium enterprises (SMEs) and says lack of competition among banks is a contributing factor.

Mr Billson said the idea of a loan guarantee scheme, contained in a new report from the NSW Business Chamber, would not address the difficulty some small businesses experience in securing a loan.

“We’ve asked the lenders `will this change your lending practices?’ and the answer we’ve got back is no,” he said after an address to a Business Chamber function in Sydney.

“The idea of the government – read: the taxpayer – underwriting certain small business loans if those loans end up defaulting is not an idea that responds to the kinds of pressures being shared with us.

“The information we’ve had from the banks is that they don’t want to make a loan that has a risk of default even if somebody else might carry a portion of the cost of that default.”

The Small Business Access to Finance report, prepared with Deloitte Access Economics, said a partial government credit guarantee would help businesses that lacked collateral required to secure a business loan.

Credit guarantee schemes in the United Kingdom, Canada and the United States have delivered gains in employment, business growth and exports, the report said.

Rigid lending criteria around collateral meant many viable small businesses miss out on loans because they do not have adequate assets.

“Our study indicates that access to finance conservatively affects more than 200,000 businesses, forcing them to slow their growth, lay off staff or shut down altogether,” NSW Business Chamber chief executive officer Stephen Cartwright said.

“According to ABS data, access to finance is the number one barrier to innovation and the third-largest barrier to general business activity.”

Mr Billson said small business finance should be a “good earner” for banks because it attracted higher interest margins that were no longer due to global financial crisis-related risk.

The minister said reduced competition for business loans, due to bank consolidation in the wake of the GFC, was a problem.

“We think it is in part the lack of competition – that the consolidation has played a part,” he said.

The minister also said he had complaints from lenders that regulatory requirements for business loans made it a difficult business and “a conversation” was needed with APRA about prudential rules.

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