RBA claims SME access to credit hasn’t changed

Despite anecdotal evidence that small and medium businesses are struggling to access the cash they need to expand, the RBA says access to credit for SMEs has not fallen as a result of the GFC, although higher costs and more conditions have been attached to loans.

The claim, which forms the basis of the RBA’s submission into a Senate inquiry into small business lending, has angered some small business lobby groups including the Council of Small Business of Australia, which says the RBA is out of touch with real market conditions.

The RBA’s submissions sets out its view of the trends and competition in the SME finance market.

The RBA says lending to SMEs have been steady over the course of 2009 after rising strongly in 2008, driven by a lack of demand from SMEs and tighter lending criteria set down by banks.

However, the RBA says credit has never really gone away.

“Small businesses in most industries have been able to access funding throughout the financial crisis, albeit on less favourable terms than previously.”

This contrasts starkly with the anecdotal evidence from SME lobby groups and advisors, who say the banks remain extremely hesitant to extend credit to small businesses.

Rising loan valuation ratios, higher risk premiums, big one-off fees to rollover funding arrangements and tighter lending criteria are just some of the problems SMEs are experiencing.

However, the RBA does make it clear that the gap between mortgage rates and rates for small business loans has widened as a result of the GFC.

“Small business loans are currently about 80 basis points above those on prime, low doc housing loans. This compares with a differential of just 30 basis points in mid-2007 and about 50 basis points earlier in the decade.”

The Bank also notes that competition in the sector has decreased, with the big four banks now dominating the market with share of 75%, compared with 65% before the GFC.