SME Growth Index Series: SMEs Outline Impact of Royal Commission

Our Scottish Pacific SME Growth Index is a twice-yearly snapshot of Australia’s small to medium sized business sectors showing cashflow issues that many businesses face today, below is one of six key insights found in our March 2019 report:

The anxiety and concern of the SME sector is evident. More than half the SMEs polled (56%) say the Banking Royal Commission has made, or will make, it harder for them to access business funding.

One in five (22%) SMEs said it was already harder in 2018 for them to access funds due to the lending environment created by revelations highlighted at the Royal Commission hearings.

Almost 34% expect this lending environment will soon have a negative impact on their accessto funding.

Only 12% said the Royal Commission had made no impact on their access to finance.

Based on these sentiments, many SMEs fear a ‘credit crunch’.

Negative public sentiment surrounding the banks as a result of the Royal Commission may be reflected in the funding frustrations data. Almost half of SMEs say they are frustrated by their funder being hard to deal with, and a quarter don’t feel secure with their lender.

The current financial and political environment makes it important for SME owners to ensure they find the right finance terms and the right security to suit their business.

How they make these important funding decisions may change, given one of the more hotly debated recommendations of the Royal Commission – removing brokers’ trail commission for home loans.

While the Royal Commission’s focus was on residential mortgage lending, one concern is that if changes are introduced that make the mortgage broking industry unviable, this will flow through to the commercial finance broking sector which plays a crucial role in helping SMEs secure business funding.

Broker industry associations fear that if a fee for service model is borne by the consumer, this is likely to decrease competition and potentially drive borrowers straight back to the big banks.

Adding a broker fee for service could have a detrimental impact on any SME already unable to get bank funding. Brokers put non-bank lending alternatives to their clients, providing viable solutions for business owners when the banks can’t or won’t lend to them.

It is advisers such as brokers and accountants who have an intimate understanding of their clients’ businesses and can help small businesses tailor the best funding option by making them aware of how the different products work
and what the risks and benefits are.

Any threat to the livelihood of essentially 20,000 small businesses – brokers – would have a negative impact on the SME sector.

With the Productivity Commission supporting a solution that retains a commercially viable broker sector, and the Prime Minister and Federal Opposition speaking out in support of brokers, it is hoped that the solution to the trailing commission issue raised in the Royal Commission is one that does not hurt the SME sector.

Anecdotally, in the first quarter of 2019 a range of alternative lenders have reported increased interest in their offerings, with funding enquiries showing that small enterprises and even medium
sized businesses are saying that in the wake of the Royal Commission, bank funding has become even harder to get.

This round, 58% of SME Growth Index respondents say that by far the greatest reason they seek new finance is to fund their expansion opportunities.

The easier it is for SMEs to get funds, the stronger the Australian economy will grow.

Given recent economic forecasts, it should be a government and business community priority to make it easier, not more difficult, for business owners to access funds.