Eight out of 10 SME owners actively resent stumping up property — often the family home — to fund their business, and most are willing to pay higher interest rates in order to keep their property off the table, according to Scottish Pacific.
The alternative finance provider polled the owners, CEOs and senior finance staff of 1,257 Australian SMEs, between November 2018 and January this year, as part of its SME Growth Index.
It found that such is the unpalatable nature of using property as security for business loans that 91 per cent would pay more to avoid doing so. Of those, almost two-thirds said they “definitely” would do so, while a further 26 per cent said they “probably” would.
The group’s CEO, Peter Langham, said the most interesting part of this finding is a huge increase in the number of business owners now unwilling to stake property against business finance.
“The number of SMEs who would ‘definitely’ be prepared to pay more to avoid providing real estate security has more than doubled in the past few years, rising from 29.5 per cent to 65 per cent,” Mr Langham said.
Part of this shift has been driven by the abrupt U-turn in house prices, with 44.5 per cent of those surveyed believing that the falling property market is crimping their ability to access business finance, and a further 35 per cent expect to feel the impact going forward.
“When we last assessed the impact of the property market in September 2017, three out of four SMEs said property prices were having no direct impact on their businesses. In the March 2019 SME Growth Index research, only one in five SMEs said they had not seen a direct impact,” Mr Langham said.
Unsurprisingly, this sentiment was most strongly felt in Victoria and NSW, given their respective capital cities have faced the strongest falls in residential values since late 2017.
$3 billion lending pledge
On Friday, Suncorp Bank announced a pledge to offer $3 billion worth of new credit to small businesses — under the current banking threshold of $3 million.
In a statement unveiling the plan, Suncorp also said that it would “increase its appetite for lending with less security”, by focusing its lending decisions more closely on assessments of business cash flows.
But Suncorp’s CEO of banking and wealth, David Carter, called for regulators to change the current lending rules to create a level playing field as a means of boosting the flow of funding to SMEs, given that smaller banks and lenders are required to set aside proportionally greater amounts of capital to cover the risk of loans going sour than is demanded of the big four banks.
“We are proud to support Australian farmers and small business owners, but when we do, as a non-major bank, Suncorp needs to allocate more capital against these loans,” Mr Carter said.
“More banking competition will help small business owners across Australia invest and grow.”