Budget 2015: Changes herald new phase for bank lending

The small business tax cuts and accelerated depreciation measures will spark an unprecedented change in bank lending policies.

The small business tax cuts and accelerated depreciation measures announced in the budget will spark an unprecedented change in bank lending policies.

They will also herald a new phase in the digital age.

The problem all small business stimulation packages face is that the spouse of the entrepreneur is reluctant to borrow more money to take advantage of increased depreciation allowances because banks have traditionally demanded that any additional loans be secured against the residential house. The spouse then says, “enough is enough — no more debt against our house”.

In anticipation of the latest measures, Westpac has used its digital systems to comb through its small business customers and isolate those small businesses where it is prepared to lend unsecured on the basis of cash flow rather than asking for more home-secured debt. It has “pre-approved” an increase in unsecured small business lending of about $30 billion — this is unprecedented in Australian banking history. It is timed to coincide with the budget measures.

So in the coming weeks Westpac managers will be knocking on doors, saying to their better small business customers: “Would you like an unsecured loan to fund additional investment? We have pre-approved, say, $250,000, for your business and you can have the money in 24 hours.”

The bank is particularly anxious that its customers upgrade their digital systems and take advantage of the cloud, although there are no preconditions on where the money is to be spent. By using the cloud, small enterprises can match large enterprises in digital systems. Those that do not digitise are likely to fail.

Australian banks have never loaned unsecured to small enterprises on a major scale. Other banks will join in the trend to help their customers take advantage of the government’s offer but only if they have the systems to isolate the better cash-generating small enterprise customers.

Westpac believes that in the next five years it can reduce its cost structure in the vicinity of 20 per cent via digital and cloud technology. To make that work, its customers must follow and make similar cost reductions and changes to their operations.

The weakness in the employment-generating part of the package is that around the world, and in Australia, the biggest rises in employment are via independent contracting. Australia has some of the best and clearest independent contracting rules in the world.

They were introduced in the Howard era and have not been changed.

But the tax commissioner continues to pursue his own agenda, which does not always comply with the law.

Small Business Minister Bruce Billson promised that in government he would make the tax commissioner comply with the law but he has not yet done so.