Banks showing higher willingness to lend to small business

Banks and lenders are showing a higher than usual willingness to lend to small business, with 94 per cent of SME loan applications approved by the lender, said the Australian Banking Association.

Despite the more favourable borrowing conditions and lower interest rates, loan applications for amounts up to $2 million have decreased by one-third since 2014.

“There could be many reasons for the downturn, including believing that they won’t get a loan, thinking it takes too long, deeming the application process too complex or they’re simply borrowing money from other sources,” said ABA CEO Anna Bligh.

Moreover, the ABA data revealed that almost a third of Australians have dreamed about starting their own business, but that access to funding is the main restraint.

However, the association also reported an encouraging lift in applications over the June quarter. According to its research, applications for new SME loans rose by 23 per cent in the June quarter 2019, a much stronger rise than the average 15 per cent increase over the previous five years.

The data in ABA’s report also showed that many small businesses wait until the last minute to access credit.

In 2017-18, nearly one in three small businesses sought credit to ensure the survival of their business, while one in four sought credit to replace equipment.

Additionally, ABA found that compared with large businesses, small businesses were much less likely to seek credit to upgrade or purchase new equipment.

The association also looked into the survival rate of small businesses, revealing that more than half a million sole traders operating in June 2014 were no longer operating in June 2018, resulting in a survival rate of 60 per cent.

Of the 1,273,769 businesses operating in June 2014 with zero employees, only 758,922 remained on the market in 2018.

Of the 571,206 businesses that employed between one and four employees, 395,953 were still operating in 2018, while of the 199,965 businesses that employed five to 19 employees, 155,270 remained in operation four years later.

Businesses that had 20 or more employees in 2014 had a survival rate of 82 per cent, shrinking from 55,222 to 45,492 in 2018.