Better SME financing options flagged as paramount
There is a need for enhanced finance offerings for small-to-medium businesses even though the Hayne royal commission may lead to the tightening of lending, according to the Institute of Public Accountants.
The recommendations stem from the Australian Small Business White Paper produced by the IPA in partnership with the IPA Deakin SME Research Centre.
IPA chief executive Andrew Conway said SMEs are a significant contributor to Australia’s GDP and, therefore, securing their growth and prosperity should be an economic imperative.
“Government should provide appropriate incentives that encourage financial institutions to urgently re-examine their finance offerings for SMEs,” Mr Conway said.
“These offerings should include the provision of varying options allowing SMEs access to funding for starting up a business and for working capital.”
Mr Conway said that while the priority of a financial institution is generating returns for shareholders, the IPA believes that banks play a dominant role in financial markets impacting all businesses.
“We hold the view that banks and similar institutions have wider obligations towards ensuring the financial health of the business community,” he said.
“The environment that is required is one of responsible and affordable lending that supports small business viability and growth.
“We also continue to advocate for loan guarantee schemes to be initiated for Australia to be in line with similar initiatives that exist in overseas jurisdictions.”
In August, a Productivity Commission report found that lenders have insufficient information on new businesses to adequately assess the risk, as they are often established by owners with limited business experience, with limited assets and without a proven business model or track record for that business.
Due to their lack of financial history, the Productivity Commission said new businesses are often faced with having to use a residence as collateral, in the absence of other collateral, or being offered unsecured finance, usually credit cards.