Banks commit to keep credit flowing to small business, where possible

Australia’s major banks have made a commitment to seek to continue to provide funding to small businesses during the current financial crisis.

The Federal Minister for Small Business, Dr Craig Emerson, held a roundtable discussion between bank representatives and small business organisations in Melbourne last Friday. The roundtable included representatives from the Commonwealth Bank, National Australia Bank, Westpac, Suncorp, ANZ and the Bank of Queensland.

The aim was to discuss credit flow to small businesses during the current financial crisis.

A statement from Emerson’s office said the banks have indicated they will “seek to maintain funding” to the small business sector. Emerson said the banks also undertook to pass on to small business, “to the maximum extent possible”, any interest rate costs.

The banks present acknowledged that business customers had not seen the same level of pass-through of changes to the official cash rate as provided to home loan customers, and that the lending criteria had been tightened.

Small businesses face the threat of becoming unviable if the flow of credit dries up or funding costs remain higher than for other parts of the economy. But the banks argue that they must maintain prudential standards to remain strong during the global financial crisis, and that small businesses present a higher risk than other parts of the economy.

The banks argued that all businesses, including banks, would be facing tougher conditions going forward. Therefore, giving a loan to a small business that can’t repay it “is not good for the bank, the business, or the economy in general”.

As at December 2008, the level of credit outstanding to small business was $20 billion greater in net terms than in June 2007, an increase of 11 per cent, the banks said.

The roundtable also formulated more details around the small business complaints clearing house, flagged on Friday.

Dr Emerson’s office would receive complaints from small businesses about access to credit and the cost of bank finance. These concerns would then be passed on to the Australian Bankers’ Association (ABA), which said it would take these concerns to senior bank management for a response.

The Council of Small Business of Australia (COSBOA) was one of the organisations that attended Friday’s roundtable. COSBOA said small business organisations would continue to work with the ABA to deal with difficulties small business might face in gaining access to credit during the crisis.

Other organisations attending the roundtable were the ABA, CPA Australia, Institute of Chartered Accountants and National Institute of Accountants.

The Financial Ombudsman Service was also represented.