Westpac pledges $6 billion for SME funding, but experts warn bar is still high

The major banks are lending to SMEs but heavily restrictive credit requirements are still locking out many businesses from obtaining much-needed finance, SME banking experts say.

The comments come as Westpac business banking chief Rob Coombe says the lender has set aside $6 billion in new funding, which represents 20% of its overall SME portfolio, which he says should help dissolve complaints about credit rationing.

Cash Stream Financial chief executive Tim Lea says there is definitely new funding available, but the credit requirements to access that funding are still very strict, and banks are more likely to lend to existing customers with whom they have long, steady relationships.

“Credit is still tough, there’s no question about it. Without speaking of one bank specifically, we’re hearing stories about credit being pulled because of a little bit of bad history on a credit report, and I think there’s a mismatch at the moment between what businesses think is happening and what actually is.”

“Certainly all the banks have cash available, but there are constraints at the higher levels. For SMEs, their history has to be squeaky clean before they can get finance.”

Westpac retail and business banking boss Rob Coombe told the Australian Financial Review this morning he is, “annoyed at the sentiment that we’re not out there to lend to the sector”.

“We have $6 billion in pre-approved facilities to SME clients. If they want to borrow this money it’s there for them to be drawn down when they need it. It’s waiting and available.”

Coombe was unavailable for comment for this morning, as the bank prepared to announce its third-quarter results today. The bank posted a 27% profit increase to $1.4 billion.

Lea says businesses are more likely to lend to their existing customers, whom they know well and have long, established relationships.

“Certainly, lenders in general are viewing new banking facilities much more cautiously. If you’re new to a bank, you have to be squeaky clean and you need a solid reason as to why you’re seeking new facilities. It’s the old devil-you-know approach.”
Dun & Bradstreet director of marketing and corporate affairs, Damian Karmelich, agrees there are now more requirements for businesses trying to access credit, but also says there is plenty of funding for those businesses willing to do the work.

“The first issue is that we need to put this in perspective. Overall applications are down, so I think a lot of businesses are just deciding that it’s not worth applying at all because they’re not going to get anything. Businesses believe so strongly they just won’t succeed.”

Karmelich says businesses need to reconsider and change their strategy – if they want the funding, they need to be willing to work for it.

“The other issue is that businesses haven’t been restricted to credit, it’s just that credit might be at a higher price, and so they suddenly back off. It isn’t that they can’t get it, it just might be too expensive at the moment.”

“But certainly, there are restrictions. The level of information creditors are seeking at the moment is much more intense. There are many more hoops to jump through, and at the end of the jumping, the finance is much more expensive.”