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With small businesses and agribusinesses often seeking assistance from banks too late in financial distress, there’s a growing call for more awareness of the broker industry.
The Banking Code Compliance Committee (BCCC) recently published a report focusing on small businesses and agribusinesses due to concerns that these sectors were reaching out to banks too late when facing financial difficulties.
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The report unveiled the challenging environment characterised by rising interest rates, inflation and extreme weather events, which has exerted immense pressure on small business and agribusiness customers, many of whom are currently grappling with financial hardships.
For these customers, the financial stresses originating from their businesses have significant ripple effects on personal finances, relationships and mental health.
As such, early intervention is crucial to achieving the best outcomes for small business and agribusiness customers experiencing financial hardship.
The report followed a workshop that brought a wide range of stakeholders together to discuss the issues and ways to improve them, BCCC chair Ian Govey AM said.
“We know customers often reach out too late for assistance. This may be because they do not know what support is available, they do not know how to access support, or even because of a perceived stigma attached to reaching out for help,” he said.
“But ultimately, these customers are not reaching out when they really need to, and it is something we want to help address.
“Seeing industry come together to explore this issue was really encouraging.
“But it is just a first step, and we need to continue to build on the ideas and programs that support these customers.”
The report indicated the need for more influence and advocacy to enhance capabilities within the accounting sector, impose stricter regulations on unregulated sectors and increase awareness of the broker industry, given its pivotal role in supporting small businesses and agribusinesses during financial difficulties.
Anticipating warmer weather conditions in the coming seasons, agribusinesses, in particular, are poised to face more challenging times. This has prompted brokers to take proactive steps in re-evaluating their cash flows.
Banks obligations
Banks have specific obligations outlined in the Banking Code of Practice when dealing with small-business and agribusiness customers experiencing financial difficulty.
These obligations, as detailed in part 9 of the Code, encompass identifying common indicators of financial distress and collaborating with small-business and agribusiness customers to find sustainable solutions to their financial problems.
Nonetheless, a significant disparity exists between the two sectors, with agribusinesses historically receiving more support and collaboration from governments and generally having a broader asset base, potentially resulting in greater support from banks.
Conversely, small businesses often encounter limited support, thereby increasing the risk of mingling personal and business finances.
A study conducted by the accounting software company Xero found that 60 per cent of small businesses lacked confidence in their ability to absorb financial shocks, with 27 per cent of respondents admitting to tapping into personal savings to keep their businesses afloat.
According to the BCCC report: “Low levels of financial literacy in small businesses mean customers may fail to understand the implications of defaulting on loan repayments.”
Consequently, many small-business owners resort to quick, no-questions-asked solutions such as buy now, pay later, which come with high interest rates, fees, charges and stringent repayment requirements, exacerbating their debt and financial difficulties.
“The entrepreneurial spirit that motivates the efforts to start a business may come with an optimism that contributes to a reluctance to reach out for support,” BCCC said.
Additionally, agribusinesses may consider their work a vocation rather than a commercial enterprise, which can discourage recognition of financial difficulties and seeking assistance.
Moreover, small-business and agribusiness customers in rural and remote areas face challenges due to reduced access to digital platforms, limiting their awareness of the available quality financial hardship assistance.
Many rely on physical bank branches and the increasing number of branch closures in regional communities has made it harder for them to access information about financial hardship assistance.
The report also highlighted the success of the Thriving Communities Partnership’s One Stop One Story Hub, which allows banks and other services to proactively connect when a customer is experiencing financial difficulties or other vulnerabilities.
“This initiative, and the positive impact it has made, demonstrates what is possible when the industry comes together to support the most vulnerable,” Mr Govey said.
“Financial difficulty is a serious problem for which effective solutions can only come from effective collaboration among the many stakeholders in the industry.”
[Related: Agribusinesses brace for looming drought, lenders report]
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