Business financing shackled by 'power and control' of banks

The “power and control” held by Australia's established banks poses a “barrier” for small businesses seeking financing, according to the Small Business Ombudsman.

Kate Carnell, Australian Small Business and Family Enterprise Ombudsman (ASBFEO), has welcomed steps taken by the federal government to lower regulatory barriers for new entrants to the banking system, saying that the moves will make it easier for small businesses to access funds. 

The Ombudsman explained that eliminating restrictions on use of the word “bank” would allow more industry participants to compete with established lenders, thus easing the way for SME owners to borrow funds.

She said that young SMEs owners often “struggle” to secure financing from the big banks due to a general requirement of bricks-and-mortar security.

The Ombudsman said: “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.

“Unless a small business is able to meet this [bricks-and-mortar] requirement, often by using a business owner’s home as security, they have few options to obtain finance.

“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.

Treasury is currently consulting on proposed amendments to the Banking Act, which, if passed, would allow authorised deposit-taking institutions (ADIs) to use the term “bank”.

Noting that banks are required by the Australian Prudential Regulation Authority (APRA) to hold at least $50 million in Tier 1 Capital, Ms Carnell said: “APRA will need to review its guidelines for minimum capital requirements if new entrants are to compete equally with the major banks.”

[Related: Economic shocks ‘will occur’: RBA]

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Lucy Dean

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