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SME loan demand surges ahead of Christmas

by Reporter5 minute read
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SME loan applications were nearly 2.5 times above the monthly average in November, with demand highest among accommodation and food businesses, new data shows.

Credit applications from small businesses across all industries surged by 145 per cent in November in line with high consumer demand for goods and services during the festive season and end-of-year period, according to recent data analysis by OnDeck Australia.

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Demand for loans were noticeably high in the “service industries”, such as accommodation and food, with the number of applications 190 per cent higher than the average recorded in November 2017.

Bucking the festive season and end-of-year trend, retail and wholesale trade lending remained stable through the calendar year, the SME lender’s analysis shows.

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Michael Burke, head of sales at OnDeck Australia, suggested that brokers understand the impact of seasonal lending patterns on their small business clients as there are differences across sectors.

He added that brokers should also “build an understanding of the data and its implications with their clients and to work with them to ensure they take advantage of lending cycles in their specific industry and maximise growth opportunities for their business.”

The SME lender’s data analysis further showed that most small businesses were applying for loans in the middle of the week and during business hours.

The news follows the federal government’s recent announcement of its commitment to establish a new $2 billion taxpayer-backed Australian Business Securitisation Fund (ABSF) to “significantly enhance” the ability for small businesses to borrow funds by providing “significant additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms”.

The announcement reflects a recommendation to establish a “Capital Enhancement Fund” from the Small Business Ombudsman, Kate Carnell, following the Affordable Capital for SME Growth inquiry.

As the ABSF is underpinned by public bonds, the government will bear some of the risk of lending to small businesses. It is expected that participating lenders will apply normal standards to loan applications.

The federal government also reiterated that it will “encourage the establishment of an Australian Business Growth Fund to provide longer-term equity funding”, a recommendation provided by the Small Business Ombudsman. 

“While the securitisation fund will increase the pool of capital for medium-term lending, it does not address the need for long-term funding for high growth SMEs, which generate the highest growth in employment,” Ms Carnell said.

“It is critical the planned discussions fast-track the establishment of the [ABGF] to address this long-term funding gap.

“Equally, [APRA] must action capital relief for the securitisation capital and the growth fund.”

Copious reports suggest that small businesses will be increasingly leaning on smaller or specialist lenders in the aftermath of the Hayne royal commission, which is expected to make credit access more difficult for borrowers.

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