RBA reports small businesses struggling to gain access to finance

- September 24, 2018 2 MIN READ

The Reserve Bank of Australia’s latest report, Access to Small Business Finance has revealed small businesses are continuing to struggle to gain access to affordable capital.

The message from the Small Business Finance Advisory Panel suggests while conditions are better than they were in the period just after the global financial crisis, around one-fifth of businesses say they have found it difficult to access finance. In addition, the proportion of small businesses that perceive it to be relatively easy to access finance has declined.

The picture was also grim for the nation’s start-up sector with the RBA’s Entrepreneur Advisory Panel suggesting access to finance for startups is very limited. The panel found banks are reluctant to finance startups given the high risks involved.

According to the panel this has led to many entrepreneurs bootstrapping their ventures with personal credit products (such as credit cards) to fund their day-to-day operations.

The panel also revealed the reluctance of banks to finance startups without appropriate collateral such as real-estate.

The report revealed startups find it difficult to borrow more than around $100,000 on an unsecured basis to support their day-to-day trading activities. While medium-sized businesses report that it is hard to obtain additional finance once they have pledged all of their real estate as collateral. As a result, many entrepreneurs delay expansion until it can be funded from retained profits.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said the report highlights the absence of entrepreneurial finance.

“The report also provides information on initiatives that might improve access to finance for small businesses; a number of which are recommendations in our Affordable Capital for SME Growth inquiry report.

“In our report we recommend establishing a Business Growth Fund, focusing on long-term funding solutions for small to medium enterprises (SME) that have the capability to grow. SMEs would be able to apply for between $250,000 and $5 million, with terms up to seven years, secured against the business.

Carnell said this approach has been effective internationally could be a game-changer for Australian SMEs and startups.

“Another of our recommendations, also referenced in the RBA’s report, is an Australian Government Guarantee scheme where member banks apply for a government guarantee to partially support a loan to SMEs with a strong business case, but insufficient real estate or business assets,” Carnell said.

“There is a funding gap for small businesses seeking capital and there are significant barriers to accessing finance, all raised in the RBA report and our own. These issues stifle business growth, employment and investment.”

Carnell believes Australia’s financial institutions need to change the way they think about lending to Australian SMEs.

“Then businesses could seize new opportunities in markets and strengthen their competitive position, which would in turn have a considerable benefit for Australia’s economy.”

Read the report

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