Semper's director, Andrew Way, outlines 10 tips to bolster business through SME funding.
Despite high clearance rates and property value rises in key cities as a result of low sales stock, the property market seems set for a period of low turnover - making the ‘elephant in the room’ of offering business funding harder to ignore, when determining how to offset the diminished residential deal flow.
When considering business lending, it’s interesting to understand the factors at play that have contributed to the current landscape. It’s not news that while the Big Four Banks are particularly strong with residential mortgages and dominate big business lending, they are poor supporters of SME funding. What’s possibly less known is that this position is largely due to APRA’s warning to its ADI members in 2018 against the increased risk of lending to businesses with loans secured against residential property.
The premise was that “historically speaking” higher LVR loans to businesses represented a higher risk than the same LVR loans to non-SMEs, which resulted in the banks being forced to apply higher risk-weightings for business loans. But this is only part of the problem. By far the biggest challenge to Australian banks is APRA’s requirement that they list their capital adequacy ratios from 8 per cent to 11 per cent by January 2024 and that is a whopping 37.5 per cent increase in 4 years. And this comes after all four of the big banks each being slapped with a $500 million capital increase last year following the Royal Commission. It’s no wonder that Treasury departments are the dominant voice in the banks and not credit departments, at this time.
The fall out effect is that the previously underserved small business lending space has been plugged by the increasingly robust non-bank sector. There are now scores of products available to support the buoyant SME market, yet we consistently receive feedback that while brokers are sold on the ‘why’ to provide business lending, there’s still a dominant block to the ‘how.’ Here are some quick tips for how to increase business by providing solutions to the growing number of SMEs seeking finance:
Andrew Way is the director of Semper and is credit, investor relations, corporate strategy and responsible lending lobbyist.
Andrew has worked in banking and finance for 30 years, specialising in risk management. Originally from the UK, he worked in Hong Kong and Singapore for 12 years before moving to Australia in 1999 as CEO International Ratings for Ernst & Young. He has also worked in the private sector and as a consultant and advisor to governments and non-governmental organisations.
Andrew is one of the founders of Semper and remains an advocate of regulatory reform in the (currently non-regulated) commercial finance sector and a proponent of responsible lending practices.
Who do you aggregate through?
Thank you for your vote, you can see the results here.
The Federal Court has declared a number of loan contracts entered...
APRA chair Wayne Byres has dismissed the need for a cut to the bu...
From 1 July, all applications for the FHLDS will require a Notice...