Focus on small business finance access: RBA

RBA to pay “close attention” to the accessibility of finance for small businesses and their prospects after a “particularly tough year”.

Chris Kent

The Reserve Bank will continue to pay “close attention” to the accessibility of finance for small businesses and their prospects after a “particularly tough year” due to the pandemic.

In an address to the Australian Finance Industry Association on Wednesday, RBA assistant governor, Chris Kents, said that smaller businesses have “suffered significantly” from the economic hardship caused by the pandemic.

He noted that a wide range of monetary, fiscal and private-sector measures have provided support and have obviated the need for small businesses to take out additional debt over the past year.

While over 200,000 small and medium-sized enterprise borrowers arranged to defer their loan payments last year, the vast majority have now resumed payments.

The share of SME loans with a deferral peaked at 13 per cent in June and has since fallen to around 1 per cent.

“Consistent with these outcomes, modelling by large banks suggests that the risk of default for small businesses relative to large businesses did not change much in 2020,” Mr Kent said.

SME lending overall has been little changed over the past year, in part reflecting the effectiveness of various measures in supporting businesses’ cash flow.

“Nevertheless, business failures are expected to rise as some of the pandemic support measures are phased out,” Mr Kent cautioned.

It comes amid some concern about a potential increase in unemployment after the Government’s JobKeeper wages subsidy ends this month.

While the RBA has vowed to continue providing “very significant monetary policy support”, the minutes of its March board meeting this week noted that: “in the near term there was some uncertainty relating to the effect that the end of the JobKeeper program would have on labour market conditions.”

While businesses’ confidence has improved markedly of late, a number of businesses, particularly smaller businesses, remain reluctant to take out new loans, Mr Kent noted.

“Some of this reflects an economic outlook that, while improved, is still very uncertain,” he said.

“Also, access to finance for smaller businesses has been a long-standing challenge.”

There are a range of policies in place to help support the supply of business credit as the economic recovery proceeds.

Given the importance of small businesses to the economy, we will continue to pay close attention to their access to finance and their prospects more broadly