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By: john | September 04, 2017

Regulatory relaxation on the cards
Small Business Loans

Access to finance a problem for small business - an industry opportunity?

The Australian Small Business and Family Enterprise Ombudsman has welcomed government moves to reduce regulatory barriers to entry for new entrants to the banking system. Treasury is consulting on proposed changes to the Banking Act, which would allow use of the word “bank” by authorised deposit-taking institutions.


Ombudsman Kate Carnell said this should improve access to finance for small business.


In recent years we have seen the continual emergence of P2P - Peer to Peer lending, filling the void left by the Banks' unwillingness to lend to this sector. There are more lenders accessible to small businesses for both secured and unsecured loans since the emergence of P2P lending, however, the loan limits based on individual circumstances may be restrictive.


“The power and control of the established banks remains a barrier for small businesses seeking capital to start or expand their operations,” Ms Carnell said.


Greater competition in this sector between Peer to Peer lenders and the Deposit-taking institutions as well as the Banks is a good thing for consumers.


“Another barrier is a general requirement by the major banks for bricks-and-mortar security. Unless a small business is able to meet this requirement, often by using a business owner’s home as security, they have few options to obtain finance. Many young people do not own a home or have limited equity in their home, and therefore struggle to borrow to start or expand a business.” says Ms Carnell.


Lack of suitable asset security currently still remains a barrier for small businesses seeking to start-out and expand. Access to unsecured loans usually means extremely high interest rates and/or shortened lending terms. Let's hope these regulatory relaxation moves result in greater flexibility and a leg up for our small business industry - a huge part of the future economic footprint in Australia, if we are willing to allow it to be.


Ms Carnell said removing restrictions on use of the term “bank” should enable more industry participants to compete with established institutions and make it easier for small business operators to borrow funds. She noted the Australian Prudential Regulatory Authority’s guidelines currently require “banks” to hold at least $50 million in Tier 1 capital.


“APRA will need to review its guidelines for minimum capital requirements if new entrants are to compete equally with the major banks,” Ms Carnell said.


These changes could pave the way for significant opportunities for movers in the financial services industry to take more market share and make lending conditions more favourable to small business consumers.


John J Maxwell, senior mortgage and finance consultant, Cocalex Consulting



If you have any questions or contributions relating to this article, please take the time to comment below and share your thoughts or opinions for the benefit of others reading this. No doubt this topic commands interaction, innovation and collaboration. The more answers that are delivered, the more questions that will arise. If you have any personal questions or queries, please feel free to contact me on 0434 455 225 or email: [email protected]



About the author:



John Maxwell is founder and Senior Finance & Business Strategist at Cocalex Consulting. John has over 17 years' experience in the financial services sector, and has owned and managed 9 mortgage franchises and has developed a background across the holistic financial services realm. He has particular focus and passion for: Leadership Training and Development, Franchise Development and Business Networking.

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