Why Dick Smith says Aussie SMEs could be forced to pay 27% interest on business loans
Friday, August 11, 2017/
Australian businessman Dick Smith has alerted Australian business owners to the possibility of business loan interest rates returning to 27% in a newly released 60-page manifesto on housing affordability.
In the document, called “Dick Smith: A Fair Go”, founder of once-dominant tech retailer Dick Smith Electronics also discussed how the credit given in housing loans since 1996 has continued to increase in a linear fashion, while business loan amounts have plateaued.
“When I started Dick Smith Electronics, my partner and I bought a house for $32,000, and because it was such a reasonable price we were able to put money into expanding the business,” Smith tells SmartCompany.
“If a business owner was doing that today, they’d have to put all their money into buying a house.”
“People think there are all these advantages to being a millionaire in the housing market, but the cost is that you’re not starting a productive business.”
When starting Dick Smith Electronics, Smith recalls banks wouldn’t loan him any money “because I didn’t have any”, saying he started with just $610 dollars and borrowed some money from a credit company.
Putting all the money he made back then into the business allowed him to continue to expand and grow Dick Smith Electronics into the Australian retail powerhouse it became. Smith sold the his final stake in the business to Woolworths in 1982 for $25 million.
“Back then I definitely benefited from not borrowing much. If you’re a small business nowadays there’s no doubt that’s still the best way to [grow your business],” he says.
Smith believes the immense amount of money Australians own through property loans is due to the record low interest rates of the last few years, recalling the interest rate for business loans in 1996 was 27%.
“Anyone who thinks rates will stay at record lows for that length of time must have their head in the sand. Many people lost everything in the 1990s when home loan interest rates peaked at 17%, and loans for small businesses were as high as 27%. It will very likely happen again,” Smith writes in his manifesto.
Elaborating further, Smith says he “can’t see why it couldn’t happen again” due to the “cyclic” nature of business.
“I’m delighted but incredibly surprised interest rates have stayed so low,” Smith says.
“If I were a small business I would be very careful about borrowing too much money.”
Wealth inequality will make it “incredibly difficult” for SMEs
Looking at Australia’s business environment more broadly, Smith believes the “incredible” wealth inequality in the nation and across the world is making it harder and harder for small businesses to thrive.
“One percent of us – and I’m one of them – hold 70% of the wealth in this country, and this incredible inequality is going to make it incredibly difficult for small business,” he says.
Discussing the growing population in Australia, Smith highlighted the potential issues of an increase in population whilst the wealth gap grows, saying “it’s going to be difficult for these people to have jobs”.
“If there’s lots of people without work, it will get even harder for small businesses to make money, as no one will have any money to spend,” he says.
“When the wealthy get wealthier and the poor get poorer, the pitchforks come out. We never learn.”
Smith believes tax rates for the wealthy should be put back to the rates it was during the 1970s and 80s – around 46% to 49%, noting businesses were still able to succeed during those times, saying “Gerry Harvey and myself did very well”.
“Most small businesses these days will still complain they pay too much tax, but we have to be careful of wealth not being shared. The government keeps putting in draconian rules and regulations to make it harder and harder for wealth to be shared,” Smith says.
“Billionaires have doubled their wealth, but typical working class Australians have lost it all.”
“The wealthy constantly saying they must have less tax is the biggest con, and the argument that if we bring down the tax rate more people will benefit is an utter lie.”
As part of this solution, Smith believes Australia should follow after countries such as Norway and publish the tax returns of the wealthy online, saying the current mindset around wealth accumulation “all about who has the bigger dick”.
“If you publish their tax returns, the wealthy will want to show they are the biggest taxpayer through peer pressure,” Smith says.
“Right now we only give glory to the guy with the bigger boat.”