Regulation of SME space ‘a good thing’

Mr Caesar, who was speaking to The Adviser following the company’s win of the Innovator of the Year Award at the Australian Broking Awards 2018 (for its launch of asset finance solution Nodifi), said: “I think the whole industry is continuing to tighten up. The reality is that the technology that has come out through some of the fintechs are way more advanced than the banks and the banks are going to struggle to keep up with that change.

“ASIC is obviously wanting to be all over it to ensure that all these fintechs are compliant.” 

The Positive Group MD noted that several fintech lenders had recently created and co-signed a new Code of Lending Practice for the SME space, adding that he believed it was “a step in the right direction”.

“We agree that there needs to be a program implemented like that into the industry and we are happy to do that, but we also want to keep innovating and doing creative things,” Mr Caesar said. 

“I think what we will see is ASIC working more closely with [the] industry off the back of this, and if there is more of a working with ASIC to make our industry more accountable, then that is a good thing. Regulation is a good thing.”

He continued: “I believe regulation can provide opportunity and, at the end of the day, it is going to provide the right outcomes for customers.

“With all the things that have been coming out of the royal commission, I think things will tighten up. But the reality is that it had to, and it can improve our industry.”

Likewise, Positive Group’s head of operations, Chris Sims, commented: “It is an exciting change, in my opinion. The whole idea of it is to ensure that customer outcomes are good… We need to make sure that the outcomes for the customer are actually what they are after, that they can afford to repay the money and that it’s not putting them into a worse position.

“ASIC doesn’t want to tighten up lending to the point where people can’t lend. They are happy for people to be able to borrow money, but it needs to be repaid and people need to be able to move forward and grow and improve. So, the fact they are tightening [credit and regulation] up isn’t a bad thing; it will just mean the customer outcomes are better.”

8 recommendations for SME lending

The comments come as the government focuses on tightening up SME lending and providing more solutions. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, recently recommended that the government provide guarantees for SMEs to use as a form of security and for a new Business Growth Fund to be established to help boost SME growth.

The newly released Affordable Capital for SME Growth report aims to help address the “market failure” that is resulting in a limited supply of patient capital for growth for SMEs.

The recommendations include:

• The private sector forming a new Business Growth Fund (with an initial pool of $1.5 billion) to provide a national solution (similar to the growth fund in the UK), which could offer both debt (loans) and equity (investment) ranging between $250,000 and $5 million for up to seven-year terms to support SME growth.
• Creating an Australian Government Guarantee Scheme (GGS) that would partially guarantee SMEs who do not qualify for bank funding because they do not have a real estate security, where the loan required is for more than three years (the maximum limit to which banks tend to lend) and when the SME operates in a sector for which the banks have debt appetite restrictions.
• Establishing a Capital Enhancement Fund to provide Tier 2 capital instruments to banks to enable a “capital build” by providing access to a new pool of capital.
• APRA moving from the one-size-fits-all model and allowing regulated institutions to apply risk weightings to specific risk factors.
• The Australian Financial Security Authority (AFSA) overhauling the Personal Property Security Register — at a minimum the public interface — to make it fit for purpose so a non-legally trained individual can accurately register title to best utilise assets as security against lending.
• SMEs working with their trusted advisers (including accountants, lawyers, brokers, business advisers, etc) to get their business finance-ready.
• The government implementing and promoting government initiatives of comprehensive credit reporting and the consumer data right in banking — part of Open Banking — in line with the government’s schedule and the benefits “widely promoted to SMEs”.
• The ASBFEO developing a short guide on financial providers, the range of financial products available and what stage of a business cycle each product is designed to fit. The guide will be distributed through the networks of SME advocates and publicised through social media.

[Related: Ombudsman calls for government guarantees for SMEs]