PRESENTER:
The funding of small and medium enterprises is a concern expressed by many top bankers and central bank officials at the G20 in recent days held in Sydney. After the GFC a range of new rules forced banks to become more cautious in how they lend to businesses but many small businesses feel they are completely locked out of the cost of finance which is still too high. Small Business Minister is hearing the concerns and has gone further; suggesting the banking regulator has over implemented some of the rules and Bruce Billson told Brooke Corte he's trying to change it.
MINISTER BILLSON:
Well it's certainly something we have been observing for some time. We've seen a concentration in small business finance around the big banks and we've seen a doubling of the spread above the cash rate for a residentially secured small business loan. So conservative lending practices, greater need to provide security, yet much more expensive finance. This is an example that's being experienced elsewhere in the world. We want to put on the table that if finance is the oxygen of enterprise, we're now past the GFC crises response harm reduction phase and we now need to think about what role access to finance can play to grow jobs in our economies – and that's been the discussion in recent days.
BROOKE CORTE:
So how do the new global capital requirements, as they've been applied in Australia, actually contributing to this problem of the cost and access to finance by small business?
MINISTER BILLSON:
Small business loans can carry with them a greater requirement for what's called 'prudential requirements' – that's the capital that a lender holds and the liquidity that's attached to that loan. That can make small business finance less attractive compared to other areas such as housing. We want to make sure that where a small business person mortgages their house, and in some cases they feel like they're mortgaging their first born, that there's actually some improvement in the accessibility and affordability of the finance that they are seeking. So those prudential rules have a bearing and we have in fact over implemented them in Australia above the global standard. We're just putting a spotlight on this as one of the number of measures we need to look at to make the ecosystem for small businesses, wealth creation and enterprise more supportive than it's been in recent years.
BROOKE CORTE:
So I don't think the horse has bolted on the issue when it comes to capital requirements. Is there room to make changes or roll some of the aspects back?
MINISTER BILLSON:
The banking stability issues are very important and no one wants to see fragility in our banking system but I will give you one example Brooke. If a small business borrower put their house on the line as security for a small business loan, banks can treat that loan as if it was a home mortgage rather than a small business up to about $1 million of value. Now the prudential requirements actually would allow that home mortgage treatment, more accommodating treatment of that finance, up to $1.5 million. So there is no good reason why we have over implemented those global standards and there is also a need for banks and small business borrowers to better understand each other's requirements and these are the areas where we are putting energy and effort at the moment.
BROOKE CORTE:
As someone whose family has put up their home for security to get a business loan, I certainly understand the gravity of that kind of issue. What proportion of small business owners are doing that very thing?
MINISTER BILLSON:
Well about two thirds of every small business that secures bank finance has had to put their house on the line. Now what we've seen is a more conservative period of lending, so much more discerning conduct by the banks themselves and you'd know from your own family's experience – quite a conservative look at the valuation of the asset that you are putting up, and then a requirement to put it on the table. So you've got the risk of default down, the cost of any default that may arise is also down, yet we've seen the spread, the cost of that finance actually double since 2007 above the reserve bank cash rate. So we think there is a need to boost competition to have a look at these prudential requirements, better match what banks are looking for and what small business is presenting to them by way of information and make sure that the oxygen of enterprise finance is more affordable and more available for small businesses.
BROOKE CORTE:
There's a Westpac Melbourne Institute Small Business Survey out this week showing that hiring intentions of the small end of town are probably improving. The May budget is only a couple of months away though with the axe sounding like it's certainly swinging, should small business be worried?
MINISTER BILLSON:
No I think small business will welcome the budget. We've got a budget repair task in getting the Commonwealth's own fiscal house in order. Getting that predictability and that certainty in place, supports small businesses making decisions themselves where they know the environment within which they are operating. We saw under the previous government 412,000 jobs were lost in small business. Now we want to say to small business, we are on your side, we're an ally, we're going to make sure the environment in which you operate and the obstacles you experience – we want to make sure it's friendlier for small business making that hiring decision. Now if only a fraction of the two million small businesses decides to add one more staff member, what a remarkable contribution that will make to the employment challenge we're all addressing.
BROOKE CORTE:
And can I ask you on one other issue – a David Jones and Myer merger has been discussed in the market and we've heard some comments from the ACCC itself. Just knowing what many small business people think of the Coles and Woolworths dominance of the grocery market – should small business be concerned?
MINISTER BILLSON:
Well the whole supply chain and consolidation around a few dominant players has been a recurring theme, a recurring concern for small business. That's why we've announced a root and branch review of our competition laws to make sure businesses big and small that are efficient, have an opportunity to thrive and prosper. The David Jones/Myer conversation - I know the competition regulator is quite interested in that proposal, if it progresses, and how it might evolve. These are the sorts of things that the ACCC looks after so it's not good for me offering a comment as a responsible Minister for the ACCC.
But it's certainly a sign of the domination that many small businesses are feeling is difficult for them if they are suppliers and highly dependent on a few dominant players in the market place.