Improving the level of information available and focusing on innovation were the main takeaways from a roundtable discussion on innovations in small business finance hosted by the Reserve Bank of Australia.
Held on Thursday (14 June), the RBA’s roundtable on innovations in small business finance brought together approximately 20 participants from several non-bank lenders involved in debtor finance, mezzanine finance, cash flow lending and marketplace lending, representatives from the Australian Treasury and regulators as well as the Australian Finance Industry Association.
The roundtable was chaired by Christopher Kent, assistant governor (financial markets) of the Reserve Bank.
The key focus of the roundtable was to discuss innovative financing options for small businesses that are emerging from outside the traditional banking system, improving small business’ access to finance while appropriately managing risk, and how to improve the information available for both lenders and small businesses.
While comprehensive credit reporting and open banking have the potential to improve access to finance by providing lenders with more information for making lending decisions, the roundtable argued that small businesses could also benefit from receiving more information about their borrowing options and the factors that affect their creditworthiness.
The participants also noted that there is a heavy reliance in small business lending on housing collateral and personal guarantees and discussed how to take account of collateral other than real property when lending to small businesses.
The roundtable also touched on the fact that entrepreneurs find loan application processes burdensome and that it can be difficult to compare products across lenders.
Other issues affecting the small business lending market include the availability of funding for new lenders to small businesses.
In a statement, the RBA said: “Participants agreed that innovation will be important for improving outcomes for both borrowers and lenders in the small business lending market.
“The Reserve Bank will continue to monitor developments closely.”
While the RBA has said that there are are no plans at this stage to reconvene this particular roundtable, it said it would "continue to monitor developments in this market closely".
As well as hosting regular roundtables and engaging with businesses and associations on developments in the economy and the financial system, the RBA also holds meetings as part of the Business Liaison Program and convenes an annual Small Business Finance Advisory Panel.
The central bank has said that the information collected via these forums helps it monitor issues relating to the provision of finance for businesses as well as the broader economic environment.
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