Are banks loosening their purse strings for small business lending?
In market share terms, small business lending has been the long-dormant segment of banking. But now as home lending remains stalled with no real sign of growth becoming evident, some signs of life are appearing. What does this mean for the business borrower?
The anecdotal evidence is that new lending deals have been increasing; conditions applied by banks loosened, as banks try to generate volume growth and build market share in a flat economy. This shows up, for example, in a loosening of things like interest-cover ratios and repayment terms.
The real issue question is: are business conditions becoming more conducive than they have been for the past two or three years? It is a mixed bag with Reserve Bank Governor, Stevens confirming the Bank’s concerns that the non-mining sectors remain caution despite some retail spending pick up in January.
What is showing up a modest turnaround in the appetite for debt in the middle-corporate and SME (small to medium-sized enterprise). Here, the anecdotal evidence revels price reductions on a case-by-case basis, compared to last year where the word from the bans to lenders tended to be (regarding their terms) ‘take it or leave it’.
When it comes to bank lending there is no doubt that interest rate margins are important (for the banks) and this with interest rates still trending down the banks’ pricing power likely to be harder to maintain. But don’t expect the bank to lend without some strength hurdles in place.
- For start ups: At the start up phase and early growth stages of a business, loans are nigh impossible to secure without personal guarantees backed by real estate or other bankable collateral
- Established businesses, banks will look at the asset base of the business and examine on a case by case basis what the hurdles and conditions will be.
- Preparation is the key as due diligence is now part and parcel of the bank’s loan application process. In the leasing sector more flexibility is available (see our newsletter xxxx).
Alternative capital raising sectors are also strong with evidence of ASSOB receiving an increasing pipeline of interest (this is the unofficial small company’s capital market where angel and private investors examine potential listing opportunities and invest on an equity basis).
Other sectors, for example the hospitality sector have financial services operators and brokers such as Silver Chef providing equipment funding solutions that help hospitality businesses.