The real finance gap killing SMEs

Banks cannot do enough for small and medium business – if you believe the PR.

They are everywhere, boasting of their willingness to lend to the SME sector, citing it as a huge opportunity. NAB is the latest, announcing this morning in its strategy document that it will have a strong focus on the SME market going forward, and that it sees a big opportunity lending to companies with under $3 million turnover where the bank is currently “underperforming.”

At the same time, small businesses are complaining bitterly about lack of access to funding and the cost of capital. So what’s going on? Are they lending or not?

Ask many of the small companies that have been left high and dry by the collapse of second tier lending and you will get a resounding No. And that is a sizeable chunk of the small business market.

What has happened is the emergence of a “finance gap” that is creating havoc.

Of the $60 billion business lending market, about 25% was filled by second tier lenders and foreign banks. But the second tier lenders have fallen over with unsustainable business models. The foreign banks have retreated to lick their wounds.

That has left a huge gap in the business loan market, and a lot of bewildered companies desperate to now be funded by the four big banks.

Some of these companies have now seen the four banks – and been knocked back. They are not considered credit worthy. Some have returned with better proposals and have subsequently got funding. But others are staring at a bleak future. The companies in the “finance gap” are going to make a lot of noise.  

And this is emerging as a huge headache for the Rudd Government.

At the same time as SMEs are facing a funding crisis, they are being hit by the global recession and the spectre for some of sweeping IR changes. Behind the scenes the Rudd Government is pressuring the banks to lend more – and the Government has some powerful leverage, reminding the banks they have recently raised $60 billion on the back of the Government guarantee.

There is also growing competition between the big banks for good businesses in the SME market. NAB has always led this segment of the market with a current 19.5% share of business lending (which includes larger businesses).

However Westpac, which has had 14% share of the SME lending market, has acquired St George with a 5% share and is aggressively going after NAB for the number one position. Meanwhile Commonwealth has stated it will maintain its $12 billion lending to this market this year, and ANZ will lend about $8 billion.

But the reality is there is no resolution in sight. Many of the small businesses in the “finance gap” are not going to get funding and will fail, blaming the banks and the Government, on the way out.

The PR war is set to intensify.

Are you having trouble getting finance? Write your comments below.