Small Business Minister Bruce Bilson warns regulators and lenders haven’t relaxed requirements enough since end of GFC

ULTRA conservative lending practices among big banks are killing the entrepreneurial spirit for small businesses, Minister Bruce Bilson said today.

Conservative lending practices by banks is making it tough for small businesses.

“Ultra conservative’’ lenders and regulators are starving small businesses of funds despite falling default rates, Small Business Minister Bruce Bilson said today.

The availability of finance had not improved enough since Australia’s recovery from the global financial crisis and opportunities for small business growth and employment were being lost, Mr Bilson told news.com.au.

Minister Bilson today outlined his concerns about excessive caution by regulators such as the Australian Prudential Regulation Authority (APRA) and lenders in a speech in Sydney to a G20 conference on public-private sector issues.

Major banks such as St George and Westpac are adding billions to their small and medium enterprise (SME) lending but non-bank institutions have slashed their funding.

“Banks need to ensure that they appropriately price risk, and do not rely on predetermined view of small businesses,’’ said Mr Bilson.

“APRA’s standardised risk weights for unsecured small business loans are the same as for unsecured loans to large corporates with a similar credit rating. However, as APRA has previously noted, small businesses are at a disadvantage as most small businesses do not have a credit rating.

John Alexander, Tony Abbott, Bruce Bilson and Philip Ruddock pictured at an event in Sydney last year.

“The smaller banks and the non-bank lenders were hit hard during the GFC. Since the GFC, non-major lenders’ share of business loans has fallen by around 10 percentage points.

“We need to ensure second-tier and non-bank lenders are not unfairly disadvantaged by prudential requirements, including capital requirements.’’

Mr Bilson pointed to the practice of SME operators having to put up their homes for security to get a business loan.

“This is because banks are unwilling to lend at affordable rates when small business do not offer up their homes, even though business defaults rates are falling from the post-GFC peak,’’ he said.

“The Government wants this to change. A lending environment where families do not have to put their home on the line to obtain finance would lead to more entrepreneurship in Australia.’’

Start-up companies usually don’t have the “proven financials’’ required by banks which, Mr Bilson said, “makes it hard for start-ups to get finance, and constrains entrepreneurial spirit.’’

“While just under 90 per cent of small businesses finance applicants have their loan application approved, this could be as low as 70 per cent for start-ups,’’ he said.

“This inability to obtain start-up finance is a strong disincentive to those looking to start a business.

“The good news is some Australian banks are increasing the amount of funds available for small business lending, including for start-ups. Now we need more competition in this space to bring down the cost of finance for small businesses.’’

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