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ISCOVER
Staff Reporter
Business borrowers are struggling to gain finance under tighter lending criteria, the MFAA has claimed.
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MFAA chief executive Phil Naylor said SMEs increasingly have to raise capital from a decreasing number of lenders, as the majors return to dominance in business lending.
He said brokers who could not attract funding from mainstream lenders were being forced to take deals to private lenders where interest rates could range from 10 per cent to 20 per cent.
“Our finance brokers are reporting that many of the smaller banks and the non-bank lenders have left the SME market, especially when it comes to property developing and office equipment and fit-outs,” Mr Naylor said.
“That leaves the large retail banks with most of the market.”
Mr Naylor said brokers reported that the major lenders were clearly cherry-picking the market: many property developers were being asked for larger equity commitments and at least 50 per cent qualified pre sales.
One large lender was asking property developers to refinance their loans so it could exit that sector.
Mr Naylor said finance brokers were frustrated that cash flow lending – where the decision to lend is made on the quality of the business and the receivables – had been dropped in favour of a return to fully secured lending.
“The GFC created a liquidity issue in our banks, and in response most of them have re-absorbed their business finance arms into the main operations of the bank,” said Mr Naylor.
“It means experienced business lenders who negotiated deals with brokers on their business merits, are now subject to more conservative practices.”
“There’s nothing wrong with banks being careful with their lending. However, SME debt finance is an important part of the Australian economy and the MFAA wants to see more competition in this vital area.”
The MFAA’s concerns are backed by Reserve Bank of Australia data that shows lending to businesses declined by 1.7 per cent in the year to February 2011 – a period in which housing credit rose by 7 per cent. The Reserve Bank says the four major banks controlled 86 per cent of the SME debt lending market in September 2010, while the majors only wrote 74 per cent of all business loans.
