Around half of Australia’s small and medium enterprises (SMEs) struggle to secure finance from traditional lenders with terms that suit their needs. According to the Reserve Bank of Australia (RBA) a recent survey of SMEs revealed that respondents believe banks have tightened lending standards, making it harder to get loans.
Banks themselves have reported being more cautious lending to sectors that are more exposed to a slowing economy.
The requirement to use residential property as collateral for loans has been a problem for SMEs for a while.
Those SMEs that do not have property to use as collateral, or do not want to use their property as collateral, have faced higher interest rates. There is a difference of around 50 basis points between loans secured by residential property and those secured by other assets. Interest rates for unsecured loans are roughly 3 percentage points higher.
This is particularly felt by First Nations business owners as First Nations people have around half the home ownership rate of other Australians.
New regulations for banks’ capital requirements for SME loans came into effect in January 2023. Lower capital requirements reduce the cost to banks to fund SMEs which may support lending to small businesses.
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