Obama’s SME boost

A few days ago, the Australian Financial Review ran a front page story suggestions “banks are aggressively competing for new business customers” by offering discounts and other incentives.

That struck a bit of an odd note, given the horror stories we continue to hear about companies trying to get finance from the banks. And it seems RBA Governor Glenn Stevens isn’t so sure about this “aggressive competition” either.

“Business credit… has continued to fall, as companies have sought to reduce leverage, and lenders have imposed tighter lending standards and in some cases sought to scale back their balance sheets,” he said in the statement released yesterday after the rate rise.

In other words, the banks are still nervous about lending to small business.

Hours after Stevens released his statement, US president Barack Obama unveiled his own plan to support lending to SMEs – a $US33 billion scheme that will see billions of dollars pumped into small community banks, who will also be given incentives to lend to small businesses.

“Small businesses… have created roughly 65% of all new jobs over the past decade and a half. And I think we should make it easier for them,” Obama said when announcing the plan.

The money will come from the Trouble Assert Relief Program, which was used at the height of the GFC to bail out the big banks. Now that many of the banks have repaid this money, Obama had decided to reinvest it.

The US has always had a large community banking sector, although many of these banks have found themselves in serious trouble during the GFC. By reinvigorating this sector, Obama hopes to refuel the growth engine of any developed economy – SMEs.

Of course, Australia’s banking sector and its SMEs are in a much better position than those in the US and a huge bailout-like package like this is probably not necessary.

But our SMEs have been squeezed by the banks and Rudd would do well to at least heed Obama’s message about the importance of SMEs.