Australian Small Businesses Get No Love from The Big Banks

Published: 19/04/2021

As we’ve written before, small businesses are vital for the success of the Australian economy. Based on The Australian Small Business and Family Enterprise Ombudsman latest data, small businesses account for about 98% of all businesses, and contribute 32% to Australia’s total GDP. Small businesses also employ over 40% of Australia’s workforce. These are all well-established facts. “Finance is the oxygen of enterprise,” according to Bruce Billson, the Australian Small Business and Family Enterprise Ombudsman. So why is the RBA Assistant Governor, Chris Kent, having to plead with banks to “take a different approach to small business borrowers, given that even under the existing Responsible Lending Laws, banks are not obliged to apply the same serviceability requirements to small businesses that need to be applied to households.”

Why do banks continue to put obstacles in the way of small business funding?

Perhaps it’s outdated ways of thinking at large institutions, or maybe it’s a lack of ability to evaluate a small business based on anything other than collateral assets. But small businesses continue to suffer because of the many obstacles to funding they encounter.

Below is by no means an exhaustive list, but will be familiar to any business owner that has tried to obtain a business loan from one of the Big Four.

• Slow approval times! "Why so long?"
  
  According to a recent survey of brokers, in the first quarter of 2020, banks were taking two weeks to decide on business loans, but by Q3 this had increased to almost 3 weeks. Of course, the COVID-19 pandemic would have had an impact on this, but even the pre-COVID time of 2 weeks is too long for a business to wait for an answer. Opportunities can easily be lost over such a delay.
• Security, security, security! "Why do I have to put up my family home?"
  
  From speaking to many small business owners over the last 3 years, it’s clear that when it comes to financing the growth of their businesses, banks almost always ask for the family home as collateral for the business loan. Some business owners are willing to take this personal risk, but many aren’t comfortable tying in their home with the business. And what of those that don’t have any real estate assets; as we all know, purchasing property in Australia is only getting harder. These businesses are excluded from the bank loan market and are possibly curtailed from taking on growth opportunities.
• Old platforms and technology! “Why do banks have old systems and processes?”
  
  Some of the Big 4 Banks have started making investments in technology and the user experience of their clients, but a couple are still running on technology that can only be described as “legacy.” Technological progress is understandably slow at these large institutions as decisions are made across many different business units and require sign off at many levels, but that doesn’t mean that bank customers need to accept the status quo. We are all used to fast technological advances, and banks need to adjust their processes to stay in tune with the expectations of their customers.
• Customer service! “Why are banks not fully supporting the SMEs of Australia?”
  
  As we saw during the Royal Commission into the banking industry, customer service was not front of mind for Australia’s large financial institutions. But every small and medium size business owner knows that client service is a key driver of success. It seems SMEs feel there is no alternative to accepting poor customer service from their bank, when in fact there are many alternative lenders that value their clients and understand what it takes to help Australian businesses succeed.

Consider Alternative Lenders

According to Grapple’s Head of Lending, Cameron Finlayson, “acquiring business finance from a specialised provider is quicker, requires less legwork, and gives the business fit-for-purpose funding, as well as benefits such as personal service and market-leading technology.” Cameron has had a long career in the industry, spanning small finance providers as well as large financial institutions, and has seen how business lending is approached on both sides of the spectrum. He continues, “big banks can’t seem to balance adopting new technologies while maintaining a high-level of customer service, and the bureaucratic red-tape makes any progress or forward thinking difficult.” All these aspects make receiving bank funding for SMEs an onerous task, and one that doesn’t always pay off even if approval is given, as banks usually lock their clients into long-term contracts, and charge a multitude of fees.

Invoice finance is a flexible solution, one which can provide the working capital many SMEs require to grow and thrive. The tendency to group all banking services with one provider is slowly trending down as more and more specialised providers come on the scene. Staying with the same old bank may mean your business is being over-charged and not getting the benefits of flexibility and technological advances that many businesses find important to succeed in the current environment.