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Friday, 11 June 2021 08:31

What is the state of Australian small business loans as COVID-19 dissipates?

By Staff Writer
What is the state of Australian small business loans as COVID-19 dissipates? Pixbay

As Australia enters the back half of 2021, it is reasonably safe to assume the country is closer to the end of the COVID-19 pandemic than it is to the beginning. While snap lockdowns remain an unfortunate fact of life, it is happening at the same time of accelerating vaccination trends while daily new infection rates remain extremely low.

As each day passes, the Australian economy appears to be one day closer to fully reopening. The exact timeline towards a return back to 2019 activity is unclear but it is comforting for entrepreneurs to know the worst has already passed. But the unfortunate reality is some businesses will be in much better shape to address pent-up demand than others.

Specifically, large multinational corporations with access to easy financing will be able to borrow whatever money they need from one of many lenders so they can operate their business knowing its future is more secure. On the other hand, entrepreneurs that struggled to stay afloat during the trying times are naturally worried that small business loans in Australia are harder to obtain.

Are these concerns justified? Let’s take a look at the latest developments in the Australian small business loan market.

The State Of Small Business Loans In Australia

The Reserve Bank of Australia (RBA) noted in a late March 2021 update that entrepreneurs are for the most part reluctant to seek out an Australian small business loan. This isn't necessarily discouraging news for the economy as the government deserves credit for promoting grants and other forms of assistance that kept many business owners afloat.

One new initiative that may have contributed to a decrease in demand for an Australian small business loan was launched at the start of 2021. Known as the Payment Times Reporting Scheme, large companies are forced to publicly disclose how quickly they pay small business suppliers. This pushes large companies to pay their small business suppliers a lot faster and by default reduces how reliant small businesses in Australia are for loans to bridge short-term needs.

This may explain why small businesses in Australia aren’t borrowing more money from lenders. The RBA states that lending activity to small and medium-sized businesses has little changed since the start of the pandemic. By contrast, large corporations appear to be taking full advantage of borrowing terms.

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Source: RBA

What The 2021 Budget Says About Australian Small Business Loans

The government’s 2021 budget that was launched in May was mostly well-received by small business groups. Most notably, the Australian Small Business and Family Enterprise Ombudsman Bruce Billson commented that the budget acknowledges “that small and family businesses are central to the nation’s economic recovery and future prosperity.”

The budget itself focused on incentives and initiatives that would help decrease the need for an Australian small business loan. For example, businesses are given greater freedom to self-assess the economic life of intangible assets, changes to how businesses deduct money spent on education courses, among others.

There were some changes that directly impacted Australian small business loans. Most notably, the government extended the SME Recovery Loan Scheme that includes an increased government guarantee of 80%, a higher maximum loan size of $5 million, and a maximum loan term of 10 years with interest rates set at 7.5% or lower.

Acting CEO of the Australian Chamber of Commerce and Industry Jenny Lambert commented: “Incentives to increase workforce participation, promote business investment and boost productivity, crucial pillars of economic success, are the standout wins for business in tonight’s Budget.”

Even though the government stepped in and is doing all it can to save as many small businesses as possible, Australian businesses still need access to loans and there are some providers that are listening to the business community.

Most notably, Australian small business loan provider Prospa said in a May 2021 press release that total originations during April were 1,331% higher year-over-year at $41.5 million. The lender sees momentum ahead and expects sustainable demand through the next year and continued approvals of loans.

A Shift In Australian Small Business Loans Taking Place

Taking a look at another vital financing segment shows how small Australian lenders can in fact compete with the big banks. According to The Sydney Morning Herald, a new “breed of fintechs” are offering ultra-low mortgage loans and can pose a serious challenge to big banks.

Experts believe that non-bank lenders like Athena Home Loans and Nano can leverage their fintech expertise and offer Australian home buyers low-cost mortgages. Over the next few years, these fintech companies will disrupt big banks in a similar way that Uber disrupted the taxi industry.

What exactly does this have to do with Australian small business loans? It’s simple. The tide is turning in a very favourable direction for business owners that are fed up with banks and their inflated rates. The Federal Court found that thousands of Australian small business loans issued by The Commonwealth Bank of Australia were issued at "substantially higher" interest rates.

If the country's largest bank will take advantage of their small business client needs, then new and exciting fintech startups will certainly find a way to offer a fair lending process.

Perhaps we are already seeing this trend play out and it may happen sooner than expected.

On June 7, Australian small business lender company Lend announced the addition of Limba Loans to its lender panel.

According to a joint press release, the funding gap in small and medium business lending in Australia is estimated at $90 billion. Large banks have been throwing away more than 25% of Australian small business loan applications throughout the pandemic.

Even prior to the COVID-19 it was difficult for small and medium-sized businesses in Australia to obtain financing.

Lend noted it is on a mission to offer Australian small business loans to more entrepreneurs at a time when big banks are ignoring the segment. This could mark the very early stages of a dramatic improvement in the segment. Lend is positioning itself as a suitable candidate to disrupt the traditional banking industry and surely other rivals are set to follow suit.

Conclusion: Australian Small Business Outlook Is Strong

The economic outlook for Australia continues to look brighter as each day passes and small businesses are eager to get back to business as usual. Even if it takes another two or three years to fully recover, the resilience of the Australian people throughout the pandemic has been the envy of the world.

Entrepreneurs can certainly leverage recent momentum and improving sentiment and can take advantage (if needed) of small business loans in Australia to be positioned for what could be an economic boom.

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