Small business is continuing to feel the pinch of tighter access to finance in Australia, despite the royal commission being over and regulatory impositions being lifted.
Sidd Bahree, finance consultant at One 80 Financial Services, has found asset finance applications are undergoing additional scrutiny so far this year.
In a discussion with sister publication The Adviser, which you can read in full here, Mr Bahree believes the appetite to lend to small business has abated.
“Firstly, one of the major lenders increased the bar for qualifying credit scoring criteria for low-doc loans. Previously, clients who scored at least 680 were able to qualify for a low-doc loan. In December 2018, we experienced a lot of push back from the banks for the clients scoring 730 or less on the credit file,” he said.
“This eventually resulted in rework and chasing the financials from their accountants, leading to delays in the assessment of the loans," he said.
"Small business owners suffered the most," he said.
Further, stricter serviceability criteria has prevented “good quality” small business owners from accessing asset finance," he said.
“For a sole trader application where a client is a single man with no kids, the threshold of monthly expenses moved up from $1,640 to a minimum of $1,980, leading to many declines for good quality clients,” Mr Bahree said.
Signs of a tough market for SME financing started to surface in 2018. Accounting giant EY’s 2018 Global Growth Barometer found that 24 per cent of Australian middle-market companies nominated access to credit as the key external risk to their growth in 2018, up from just six per cent last year.
“This data demonstrates that there’s a real perception among our medium-sized businesses that banks have started a pre-emptive lending crackdown that is increasing the cost and reducing the accessibility of direct financing,” said EY at the time.
“Companies are exploring their options and alternative forms of finance beyond bank lending. There’s a huge amount of private capital out there looking for a home and middle-market businesses are looking to access this to fund their growth.”