Application crackdown reverberates through asset finance

“Along with the mortgage broking sector, [the] asset finance industry has experienced a similar hit as well,” he said.

“Many mortgage brokers are now putting the loan applications for asset and equipment finance, and [despite] this being a completely different ball game altogether, banks are returning back the asset finance applications.”

While lenders have denied claims that their appetite to lend to small businesses had abated during the banking royal commission and in the aftermath, Mr Bahree said the opposite is “evident” based on his recent experiences with clients.

“Firstly, one of the major lenders increased the bar for qualifying credit scoring criteria for low-doc loans. Previously, clients who scored at least 680 were able to qualify for a low-doc loan. In December 2018, we experienced a lot of push back from the banks for the clients scoring 730 or less on the credit file,” the One 80 finance consultant said.

“This eventually resulted in rework and chasing the financials from their accountants, leading to delays in the assessment of the loans.

“Small business owners suffered the most.”

Additionally, stricter serviceability criteria has needlessly locked out many “good quality” small business owners from accessing asset finance.

“For a sole trader application where a client is a single man with no kids, the threshold of monthly expenses moved up from $1,640 to a minimum of $1,980, leading to many declines for good quality clients,” Mr Bahree said.

He also observed a deterioration in lenders’ preparedness to provide loans to new business owners.

“Lenders are not willing to support new ventures without substantial deposit. For example, a client working as a concrete truck driver – [after] being in the industry for the last four years, he [is] now looking to go on his own – would have qualified for a business loan just on the basis of his last two years of tax returns and a new contract in place,” Mr Bahree said.

“Now, the lenders are asking for 20 to 30 per cent deposit, and in some instances, even with a deposit, the client may not qualify just because [it] is a new venture.”

Overall, at a time when it’s well-known that access to finance is a significant challenge for small businesses, Mr Bahree said the lending changes have exacerbated the stress that small business owners are experiencing, while also noticeably raising the amount of rework brokers are having to do.

“Small businesses have less access to the equipment finance, leading to more delays and financial loss in some cases,” the One 80 financial consultant said.

“Small business owners are time-poor and they need quick and hassle-free access to capital. With all the lending changes, there is more stress on the business owners than ever before.”

The state of small business finance in Australia has compelled the federal government to intervene to ensure that small businesses are able to obtain the finance they need to fund trading activities and growth.

This week, the Coalition government announced that if re-elected, it would establish an Australian Business Growth Fund to facilitate up to $1 billion in capital investment to the SME sector via a funding arrangement between the federal government and the banking and superannuation sectors.

Both houses of Parliament also recently approved the government’s measures to establish a $2 billion Australian Business Securitisation Fund and extend the instant asset write-off.

[Related: Common sense ‘missing’ in loan application scrutiny]