Parliamentary inquiry into SME lending delivers “benign” recommendations: Expert

A Parliamentary inquiry into finance access for small- and medium-sized businesses has failed to deliver any big-bang recommendations, with CPA Australia saying small business owners would have been hoping for more firm action to improve credit conditions.

The Parliamentary Joint Committee on Corporations and Financial Services Access, chaired by Queensland Labor MP Bernie Ripoll, was set up to look at finance and credit options for SMEs and current levels of choice and competition, as well as the need for any legislative or regulatory change to assist access to finance by SMEs.

But while the report highlights concern that banks and in their staff “do not fully appreciate the conditions particular to the SME sector and the nuances of SME finance”, the committee’s recommendations have been described by experts as “benign”.

Released last night, its four recommendations are:

• The Government assess the value of developing uniform definitions of ‘micro’, ‘small’ and ‘medium’ business to be applied for data gathering, policy development and analysis by Commonwealth and state agencies;
• the Reserve Bank of Australia specifically track the impact of the introduction of new global banking standards, Basel III, on the cost of SME finance and residential mortgages;
• the Code of Banking Practice and the Mutual Banking Code of Practice be amended to include a standardised notice period for notifying business borrowers of changes to loan terms and conditions that may be materially adverse for them;
• and the Government undertake further work to explore policy measures which may strengthen the mutual sector as a ‘fifth pillar’ of the banking system and thereby promote competition.

Gavan Ord, senior business policy adviser for CPA Australia, expressed surprise the report came out so quickly, at 5.30 in the afternoon before the Royal Wedding.

“We think the recommendations are fairly benign, and I think there were quite a number of small businesses expecting more, even though the recommendations are reasonable,” Ord told SmartCompany.

Ord says while he has no qualms with the report coming out with just four recommendations – in addition to the six recommendations from the previous Senate inquiry, released last June – he argues that what the committee has called for is hardly ground-breaking.

“I suppose you can say there’s another four recommendations awaiting the Government’s response,” he says.

Ord applauds the recommendation for improvements to the code of banking practice, but says a separate code of practice for SMEs – as exists in Britain and Canada – would have been better.

“We’ve run a number of round tables and one of the key issues was the breakdown between small business and lenders, and we think an improvement in the code of banking practise is a step in the right direction.”

“In the UK and Canada, there is a separate code of banking practice for small business, but Australia doesn’t have one.”

Ord also notes that in Canada, access to funding is less of an issue than in Australia, partly because Canadian banks have a small business code of practice, but also because the Government provides a loan guarantee for select SMEs and the Government owns a specialised SME lender.

Ord was also supportive of improving information about SME lending.

“One thing that came out of inquiries is there’s a dearth of precise data on small business lending, so it’s hard for policymakers to make informed judgements because they’re relying on anecdotal evidence,” he says.

“They do that in the US, UK, Canada and elsewhere, where they have a bank lending survey in which bank officials are asked about changes in the demand for bank finance.”

“That sort of thing would provide some sort of independent source of information on business lending.”

Peter Strong, executive director of the Council of Small Business Organisations of Australia, agrees that the recommendations are unlikely to have a dramatic impact.

A spokesman for Federal Treasurer Wayne Swan did not respond to questions this morning.